Here’s What a $1,400 Investment in Taiwan Semiconductor Manufacturing (TSMC) Stock Could Be Worth in 3 Years
Spending on artificial intelligence (AI) infrastructure is likely to keep ramping up over at least the next several years. Gartner projects AI infrastructure spending to reach nearly $2 trillion by 2027, while a Deloitte survey found that 87% of companies expected their AI infrastructure spending to at least double by 2028, with 30% expecting their AI budgets to be at least five times higher.
This should be a big boost to Taiwan Semiconductor Manufacturing (TSM -1.02%), which is the world’s largest foundry (chip manufacturer). Manufacturing advanced logic chips, like graphics processing units (GPUs) and server-center central processing units (CPUs), is a difficult endeavor that requires both technological expertise and scale. As competitors have struggled to achieve high yields (few defects), TSMC has established itself as a virtual monopoly in advanced chipmaking and one of the most important companies in the semiconductor supply chain.
Image source: The Motley Fool.
This also makes TSMC one of the best ways to play the AI infrastructure boom, in my opinion. With $1,400, you could buy three shares of the stock.
No matter who wins the AI race, TSMC benefits
The great thing about TSMC is that it wins no matter which AI chip company takes market share. Whether it’s Nvidia or Advanced Micro Devices with their GPUs, or Broadcom and Marvell Technology with their custom AI ASICs (application-specific integrated circuits), like Alphabet‘s tensor processing units (TPUs), TSMC manufactures all of these chips.
The same holds largely true in the data center CPU market. Intel manufactures most of its own CPUs, although it is expected to lose market share in the coming years. Meanwhile, the CPU market as a whole is expected to explode, driven by the rise of agentic AI.
Beyond the data center market, TSMC will undoubtedly benefit from the proliferation of chips enabled by other technological advances, including robotics, self-driving automobiles, and physical AI. These are all potentially huge markets that will need a lot of advanced semiconductors.
In the meantime, TSMC is seeing outstanding revenue growth and strong gross margins. Last quarter, its revenue climbed nearly 34% in U.S. dollars to $40.2 billion, while its gross margin expanded 910 basis points to 67.7%. Revenue growth has accelerated in the third quarter, with July revenue climbing 45% in local currency, August revenue up 52%, and September sales surging 55%. TSMC is working closely with its largest customers to increase capacity to meet growing chip demand, while its position in the industry has also given it solid pricing power.
Taiwan Semiconductor Manufacturing
Today’s Change
(-1.02%) $-4.68
Current Price
$453.31
Key Data Points
Market Cap
Day’s Range
$449.75 – $464.83
52wk Range
$266.82 – $487.47
Volume
67.4K
Avg Vol
11.3M
Gross Margin
63.08%
Dividend Yield
0.83%
Where TSMC could trade in three years
Given the boom in AI infrastructure spending and the continued proliferation of chips, analysts expect to see strong growth for TSMC over the next few years.
Analysts currently forecast that the company’s adjusted earnings per share (EPS) will climb from $16.96 this year to $28.64 in 2028. Assume another 25% EPS growth the following year and 20% the year after that, and it would produce adjusted EPS of roughly $43 in 2030.
The stock currently trades at a forward price-to-earnings (P/E) of just over 21 times 2027 analyst estimates. If we apply an 18x to 22x forward P/E multiple to the stock, that would have it trading in a range of $775 to $950 in three years.
A less than $1,400 investment (three shares) would be worth between $2,325 and $2,850 in 2029. That’s equivalent to roughly a 70% return at the low end and a more than 100% gain at the high end.
With TSCM stock potentially doubling over the next three years, it is a top AI stock to buy today. The biggest risks to the stock hitting these levels would be an AI infrastructure spending slowdown and/or the company losing market share and pricing power to a competitor like Samsung, Intel, or even the new Terrafab joint venture being built by Tesla and Space Exploration Technologies.
Geoffrey Seiler has positions in Advanced Micro Devices, Alphabet, and Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Intel, Marvell Technology, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
