Shares of Taiwan Semiconductor Manufacturing(NYSE: TSM), popularly known as TSMC, have been under pressure in 2025. Investors have concerns surrounding the health of artificial intelligence (AI) infrastructure spending earlier this year followed by the recent tariff-related turmoil, which sparked a stock market sell-off. Still, the company's latest results show that these factors haven't derailed the company's impressive growth trajectory.
TSMC released its first-quarter results on April 17. The company's revenue and earnings rose impressively from the year-ago period, and management's guidance clearly indicates that it isn't expecting a slowdown in its growth on account of the tariff-fueled trade war.
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Let's take a closer look at TSMC's latest quarterly results and check why it may be one of the best bets in the AI chip sector right now.
AI-fueled demand is powering TSMC's impressive growth
TSMC's Q1 revenue jumped 35% year over year to $25.5 billion, while earnings shot up nearly 54% from the year-ago period thanks to an improvement in its margins. Specifically, TSMC's net profit margin increased by 5 percentage points from the year-ago quarter, and this can be attributed to the higher prices that it can charge customers.
The company enjoys a commanding lead in the global foundry market with an estimated share of 67% in the fourth quarter of 2024, according to Counterpoint Research. Its share of the foundry market increased by 6 percentage points from Q4 last year, thanks to the technology advantage it enjoys over rivals as well as the impressive customer base it has built.
TSMC's chip manufacturing services are used by AI chip giants such as Nvidia, Broadcom, Marvell, AMD, and Intel. These companies make various kinds of AI accelerators ranging from central processing units (CPUs) to graphics processing units (GPUs) to custom AI processors. The demand for these AI accelerators is expected to jump significantly in the future. Grand View Research estimates that the AI chip market could clock annual growth of 29% through 2030.
Given that TSMC fabricates chips for all the major designers of AI semiconductors, it is one of the best ways to capitalize on this massive end-market opportunity. However, TSMC's AI-related growth potential doesn't end here. That's because the company also manufactures chips for the likes of Samsung, Qualcomm, and Apple. Along with AMD and Intel, which manufacture chips used in personal computers (PCs), TSMC is well placed to make the most of the growing adoption of AI-enabled devices such as smartphones and PCs.
The generative AI-capable smartphone and PC market is expected to clock annual growth of almost 35% through 2029, presenting yet another massive growth opportunity for TSMC. So, it is easy to see why TSMC is expecting another quarter of solid growth. Its Q2 revenue guidance of $28.8 billion would be an improvement of 38% over the year-ago period, and this points toward an acceleration in the company's growth in the current quarter.
What's more, TSMC is expecting its operating profit margin to jump by 5.5 percentage points year over year in Q2. This should translate into outstanding earnings growth for the company. Another important thing worth noting here is that TSMC has maintained its capital expenditure forecast for 2025 despite tariff-related concerns.
This suggests that the company is confident of witnessing strong demand for its chips. This is precisely what CEO C.C. Wei pointed out on the latest earnings conference call:
Now let me talk about the recent tariff. We understand there are uncertainties and risk from the potential impact of tariff policies. However, we have not seen any change in our customers' behavior so far. Therefore, we continue to expect our full year 2025 revenue to increase by close to mid-20s percent in U.S. dollar term.
TSMC expects its AI chip revenue to double this year. That's why the company is focused on doubling its advanced chip packaging capacity this year to meet the robust demand for AI GPUs and custom processors, along with other chips needed for AI training and inference.
The stock is a no-brainer buy right now
We have already seen that TSMC's earnings are growing at a remarkable pace, and that trend is expected to continue in the current quarter as well. Moreover, the long-term potential of the AI chip market and TSMC's dominant position in the foundry space should ensure that it keeps growing at a nice clip for the remainder of the year and for the long run.
Analysts are expecting a 31% increase in the company's earnings this year. Importantly, TSMC is expected to maintain double-digit earnings growth for the next couple of years as well.
However, the long-term opportunity in the AI chip market, which is expected to grow at an annual rate of almost 35% through 2035, could help TSMC's earnings grow at a faster pace than the market's expectations. Throw in the fact that TSMC is trading at less than 20 times earnings, and it is easy to see why it is a no-brainer buy right now to make the most of the fast-growing AI chip market.
So, investors looking to add a top AI stock to their portfolios should consider buying TSMC following its 25% decline this year as its strong earnings growth and attractive valuation could eventually translate into healthy gains on the market.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.
