Semiconductor production in Taiwan will increase in the next 5 years. Here is 1 reason why.

Semiconductors are the underappreciated champions of the technology world. They are found in smartphones, computers, televisions, appliances, cars and hundreds of other items that people interact with every day.

Many of the semiconductors used in these products come from Taiwan Semiconductor Manufacturing (NYSE: TSM)the largest chip foundry in the world. It’s been a great five years for TSMC stock, with a 330% gain, and the next five years look just as promising. The reason is artificial intelligence (AI) and TSMC’s role in it.

The foundation of the AI ​​pipeline

The best way to understand why TSMC is so well positioned for the next five years is to work backwards, starting with the AI ​​applications that many people have started interacting with in recent years.

AI applications like OpenAI’s ChatGPT and ABC The twins must be trained using massive amounts of data that far exceed what can be stored in traditional ways such as external hard drives or the cloud. As such, it must be stored in data centers.

These data centers also rely on graphics processing units (GPUs), which is why Nvidiathe world’s largest GPU manufacturer, has seen explosive growth recently. And without TSMC’s manufacturing capabilities, these GPUs would be far less efficient. If AI applications are the top of the pyramid, TSMC semiconductors are the foundation.

The Taiwanese company projects that AI-related sales will grow at a compound annual rate of 50% over the next few years. That would bring the category to about 20 percent of TSMC’s revenue by 2028, a huge boost for the company after slowing smartphone sales recently hurt its business.

Revenue growth doesn’t always translate to stock price growth, but if management’s AI predictions prove accurate, TSMC stock has the potential to rise.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before buying stock in Taiwan Semiconductor Manufacturing, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $763,374!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

The story continues

See the 10 stocks »

*The stock advisor returns as of August 12, 2024

Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Prediction: Taiwan’s semiconductor production will grow over the next 5 years. Here is 1 reason why. was originally published by The Motley Fool