Did you miss Nvidia? Buy Taiwan Semiconductor instead.

The hottest large-cap stock of the last five years is without a doubt Nvidia (NVDA 4.55%)which increased by over 2,900% during that period. However, if you missed Nvidia, there’s another stock in the semiconductor space that looks like it could be a nice winner in the coming years: Taiwan Semiconductor Manufacturing (TSM 2.91%)or TSMC for short.

Let’s see why TSMC could be a big winner in the next few years.

A winner of AI infrastructure development

As the world’s largest semiconductor manufacturer, TSMC plays a vital role in the continued development of artificial intelligence (AI) infrastructure. Today, many leading semiconductor companies use what is known as a fabless model, which basically just means that they design the chips but don’t manufacture them. Fabs, also known as foundries, are chip manufacturing facilities. This is where Taiwan Semiconductor comes in.

As such, many of the world’s largest chip design companies are TSMC customers. This includes many traditional semiconductor companies such as Nvidia, Advanced microdevicesand Broadcom. However, its biggest customer is Applewhich designs its own chips to power its devices and uses TSMC to manufacture them.

Not surprisingly, with the huge demand Nvidia is seeing for its graphics processing units (GPUs), TSMC has also benefited. The company is also well positioned to benefit from other companies looking to make inroads into this market. AMD generates some of Nvidia’s revenue from GPUs, but the company just made an acquisition to help it become more competitive in the space. Meanwhile, non-traditional chip companies are loving it Amazon and Alphabet they’ve also developed their own lower-cost AI chips in an effort to break into the market — and they need help making physical chips from their designs.

At the same time, demand generally continues to outstrip supply for the best AI chips, with TSMC working hard to try to increase capacity to meet this growing demand. With the market tight and many companies looking to gain capacity at its foundries, TSMC is well positioned.

The company has already indicated that it will consider raising prices next year on its more advanced technologies. Conformable Morgan Stanley according to analysts, prices for its 4nm and 5nm wafers are projected to rise 10% to 11% next year, while its new 3nm technology could see a 4% price increase.

The company has already seen strong growth, with second-quarter revenue up 33% in US dollars to $20.8 billion. Meanwhile, it recently announced that revenue for the month of July was up nearly 45% in New Taiwan dollars.

TSMC has a lot of leverage given the current market conditions, and the combination of increased capacity and higher prices has the company performing even better next year and beyond.

Image source: Getty Images.

Time to buy the stock

TSMC has a lot of growth ahead, building AI infrastructure that is still in its infancy. Commentary from major cloud computing companies and the like Meta platforms indicates that AI will only need more computing power as the technology advances. Meta, for example, said its large language model Llama 4 is likely to need 10 times more computing power to train than its previous AI model.

All that computing power means the need for more chips, which will continue to benefit TSMC. In the meantime, it’s set up to be a winner, even if competitors were to eventually challenge Nvidia’s dominance. Most of Nvidia’s current and potential rivals are also no-nonsense designers.

Trading at a forward price-to-earnings (P/E) ratio of just over 20.5 times and a price-to-earnings-growth (PEG ratio) ratio of under 1, TSMC is attractively priced for the growth it has ahead of it in the next few years.

TSM PE Ratio data (1 year ago) by YCharts

If you’ve missed Nvidia’s stunning rise and are afraid to buy the rising stock, or are just looking for another way to play AI infrastructure development, TSMC is a strong AI hardware investment to consider at current levels.