1 favorable trend that explains the 99% increase in Taiwan Semiconductor’s share price

Actions of Taiwan Semiconductor Manufacturing (TSM -0.15%) have grown over the past year, largely due to rising demand for next-generation chips capable of handling artificial intelligence (AI) workloads and a rebound in the broader semiconductor sector.

TSMC, as the company is also known, is the world’s largest contract semiconductor manufacturer, serving companies such as Apple, Nvidia, Broadcomand AMD. It controls more than half of the third-party foundry market and is responsible for about 90% of the advanced chips produced by third-party manufacturers.

This makes TSMC one of the most important companies in the world, as semiconductors are essential components in most modern technology.

Its revenue growth accelerated and generated strong margins. The chart below shows you why the stock is up 99% over the past 12 months.

Spending on cloud infrastructure is on the rise

Amazon, Microsoftand Alphabet are the world’s largest providers of cloud infrastructure, and all three have increased their capital spending over the past four quarters as the AI ​​boom has gained momentum.

GOOGL Capital Expenditure Data (Quarterly) by YCharts.

Combined, the three companies added about $17 billion in capital spending to build new data centers and meet the demand for processing power to support new generative AI technologies. While some investors have criticized Microsoft and Alphabet, suggesting they have overspent on AI infrastructure, those companies have defended those investments, insisting that the risks of underspending and missing out on the AI ​​race outweigh the risks of overspending.

A significant portion of that extra spending goes to chips that come from TSMC’s facilities, as the foundry giant makes a lot of high-end chips on behalf of Nvidia and others. As long as those companies ramp up capital spending, investors can expect TSMC stock to continue to outperform.