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There is no shortage of artificial intelligence (AI) stocks that have trounced the market over the past few years. Even after a recent tech stock decline, brought on by rising competition from a cheaper AI model created by China-based DeepSeek, many AI stocks are still easily outpacing the market.
Chipmaker Taiwan Semiconductor Manufacturing (NYSE: TSM), also called TSMC, is one such monster stock that continues to crush the market despite the recent rout. At the time of this writing, it has gained 79% over the past 12 months, easily beating the S&P 500's 23% gains.
Not only is TSMC still outpacing the market, but I also think it still has room to run despite some of the recent pessimism that's entered the AI stock space. Here's why.
Why TSMC stock has easily beat the market
TSMC is one of the world's leading semiconductor manufacturers and, most importantly, the dominant maker of AI chips, producing an estimated 90% of the most advanced processors.
Taiwan Semiconductor has benefited from an increase in AI processor demand driven by companies competing for dominance in the AI market. For example, as OpenAI needs more chips to train ChatGPT, it leads to more orders for Nvidia processors, which in turn drives demand for TSMC's manufacturing.
Another thing pushing Taiwan Semiconductor forward is the fact that its technology is far ahead of other chip manufacturers. It's already a leader in 3-nanometer (3nm) chip manufacturing, which the company says is the industry's most advanced semiconductor technology and is far ahead of even advanced 5nm manufacturing.
TSMC will likely keep this competitive advantage because it will begin its next generation of chip manufacturing, 2nm, later this year. The company says its 2nm tech will be the new standard in advanced semiconductor manufacturing and "will further extend our technology leadership well into the future."
Why TSMC could continue making significant gains
The recent pullback in AI stocks has understandably made some investors wonder whether they should rethink their AI strategies. But what I think some people are missing is that semiconductor demand could actually increase with more-efficient AI models.
For example, Microsoft CEO Satya Nadella said recently that "As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of." He referenced Jevons paradox, which says that when technological advancements make products more efficient to use, demand increases because it's more easily accessible to more people.