Taiwan Semiconductor Manufacturing: Why This AI Chip Leader Stands Out Among AI Stocks to Watch in 2023

The Semiconductor Supply Chain Behind AI’s Boom

The artificial intelligence revolution has created unprecedented demand for specialized computing hardware. At the center of this ecosystem sits Taiwan Semiconductor Manufacturing (NYSE: TSM), the world’s dominant foundry serving major chip designers including Nvidia and its competitor AMD. As these companies race to meet AI demand, TSMC’s manufacturing capacity has become the critical bottleneck—and competitive advantage—shaping the entire industry landscape.

Financial Performance Accelerated by AI Demand

TSMC’s latest quarterly results demonstrate the scale of this opportunity. In the third quarter, the company generated revenue of 989.9 billion New Taiwan dollars ($33.1 billion), marking a robust 30% year-over-year surge. Profitability expanded even faster, with diluted earnings per share climbing 39% year-over-year to 17.44 New Taiwan dollars ($2.92). This earnings trajectory reflects TSMC’s pricing power and operational leverage as it captures the wave of AI infrastructure investment.

The company’s historical EPS growth tells an even more compelling story. Over multiple years, shareholders have witnessed consistent earnings expansion directly correlated with rising AI chip orders. This pattern suggests TSMC’s growth trajectory remains intact as AI adoption accelerates across data centers and enterprise applications.

Massive Capital Expansion Underway

To capitalize on sustained demand, TSMC is deploying capital at an unprecedented scale. The company is constructing three advanced manufacturing facilities in the United States, alongside packaging and R&D infrastructure, representing a combined $165 billion commitment. This expansion positions TSMC to become less dependent on Taiwan-based production while strengthening relationships with U.S. customers—a strategic shift that offers long-term stability.

Valuation Advantage Relative to Peers

Among AI-exposed semiconductor plays, TSMC offers compelling relative value. Its price-to-earnings (P/E) ratio significantly undershoots both Nvidia and AMD, suggesting the market has yet to fully price in TSMC’s role as the foundational layer of AI chip production. While Intel trades at an extraordinarily elevated multiple exceeding 4,000x earnings, TSMC’s valuation appears attractive for investors seeking exposure to the AI supply chain at a reasonable entry point.

Long-Term Investment Case

The convergence of strong revenue growth, expanding profitability, and substantial capital deployment creates a durable investment thesis. TSMC’s position as the world’s leading foundry for advanced semiconductors, combined with its demonstrated execution capability and reasonable valuation, positions it as a significant beneficiary of sustained AI demand. For investors evaluating AI stocks to watch, TSMC deserves consideration as a foundational play on the infrastructure supporting artificial intelligence innovation.