Nvidia (NASDAQ: NVDA), the world’s largest semiconductor company by market capitalization, owes much of its meteoric rise to an ecosystem of technology partners. Foremost among those is the Taiwan Semiconductor Manufacturing Company (TSMC; NYSE: TSM), the global leader in semiconductor foundry services. Recently, during a high-profile visit to TSMC’s headquarters, Nvidia CEO and founder Jensen Huang referred to TSMC as “one of the greatest companies in the history of humanity,” and stated that “anybody who wants to buy TSMC stock is a very smart person.” That endorsement, coming from the architect of Nvidia’s $3 trillion market cap AI juggernaut, has ignited discussion among investors worldwide: is TSMC the next must-have AI stock?

The Foundry at the Center of the AI Universe

Established in 1987, TSMC pioneered the dedicated semiconductor foundry model, manufacturing chips for leading fabless design companies. Today, TSMC supplies advanced chips to Nvidia, Apple (NASDAQ: AAPL), AMD (NASDAQ: AMD), Qualcomm, and many more. The company’s neutrality in the supply chain enables it to serve direct competitors—such as AMD and Nvidia, or Apple and Android phone makers—positioning TSMC as an enabler of industry-wide innovation and growth.

Modern AI, data center infrastructure, and consumer electronics all depend on TSMC’s advanced manufacturing nodes. For example, the brains powering Nvidia’s H100 and Blackwell AI GPUs are fabricated using TSMC’s latest process technologies. Apple’s iPhone chips, including its flagship M3 and A18 series, are also produced at TSMC’s cutting-edge facilities. As of 2024, TSMC held over 60% of the global pure-play foundry market, according to data from TrendForce, with total revenues nearing $73 billion in 2023—a 15% year-over-year increase despite cyclical headwinds elsewhere in the industry.

Breakthroughs in Chipmaking: Racing to Smaller Nodes

The driving force behind TSMC’s enduring advantage is relentless technological innovation. TSMC was the first to bring 7nm, 5nm, and 3nm process nodes to high-volume production, staying a generation ahead of most peer foundries. In 2024, TSMC began risk production of its much-anticipated 2nm node, offering 25–30% enhanced power efficiency versus its 3nm predecessor. This leap addresses a growing pain point in AI data centers, where the energy consumption of AI workloads is becoming a multi-billion-dollar expense for cloud providers and hyperscalers.

Looking even further ahead, TSMC’s research and development roadmap includes 1.6nm and 1.4nm nodes as early as 2027, leveraging next-generation gate-all-around (GAA) transistor architectures. Such advanced nodes are critical for AI acceleration chips, high-performance CPUs, and energy-efficient mobile devices—further strengthening TSMC’s position at the heart of the global tech supply chain.

Positioned for the AI Supercycle

The explosion of generative AI and large language model (LLM) training has set off a massive “arms race” in silicon. Spending on AI-optimized chips is forecast by Gartner to exceed $110 billion by 2026. Major cloud providers (AWS, Microsoft Azure, Google Cloud) and leading consumer tech firms are locked in a competition to secure TSMC’s latest wafers.

In its most recent Q2 2024 earnings, TSMC reported revenue growth of 44% year-over-year in U.S. dollar terms—outpacing virtually every other large-cap tech company except Nvidia. Net income surged to record highs, and its gross margins remained above 53%—an impressive feat in a cyclical and capital-intensive sector. Notably, over 50% of TSMC’s Q2 revenue came from chips using 5nm and 3nm technologies, underlining how crucial advanced process nodes are for leading-edge customers.

Valuation: A Tech Leader at a Market-Average Price

Despite TSMC’s role as the backbone of the AI hardware revolution, its stock trades at a remarkably modest valuation. As of late August 2025, TSMC is priced at 24 times forward earnings, nearly identical to the S&P 500’s average multiple of 23.7. This is unusual for a company that combines dominant market share, rapid earnings growth, and a crucial enabling role in the world’s biggest technology trends.

For investors accustomed to tech sector premium pricing—Nvidia trades above 40x forward earnings, while other AI beneficiaries like AMD and ASML command higher multiples—TSMC’s valuation appears particularly attractive. The company pays a dividend (yielding over 1.7% as of Q3 2025), maintains a fortress-like balance sheet, and is expanding manufacturing capacity both in Taiwan and overseas (including new facilities in Arizona and Japan) to diversify geopolitical risk.

Risks and the Geopolitical Crossroads

Of course, no investment is risk-free. TSMC’s location in Taiwan puts it at the center of U.S.-China geopolitical tensions, as the global tech sector worries about supply chain continuity amid rising regional conflict fears. In response, TSMC—and its major customers—are investing in supply chain resilience through “friend-shoring” and overseas fabs. TSMC’s Arizona facility, albeit delayed, is projected to go online by late 2025, ensuring that some leading-edge U.S. chip production can be secured domestically.

Still, the world’s appetite for AI, smartphones, and high-performance computing devices means TSMC’s foundry services are likely to remain indispensable through the end of the decade. Regulatory hurdles, capital costs, and shifting global alliances warrant attention but are unlikely to unseat TSMC’s technical dominance in the medium term.

Investor Takeaway: A Pillar of the AI Age

Jensen Huang’s assertion that investing in TSMC is “very smart” is more than exuberant praise from a partner—it’s a logical assessment of technology’s beating heart. With a market-average valuation, sector-leading growth, and an essential place in the AI supply chain, TSMC stands as one of the most compelling AI infrastructure investments available for discerning investors.

As always, investors should consider their own risk tolerance and conduct comprehensive due diligence. But for those seeking exposure to the AI supercycle’s foundational winners, TSMC offers both growth and resilience. The genius in AI investing may indeed start here.