1 favorable trend that explains the 68% increase in Taiwan Semiconductor Manufacturing’s share price this year

No other company is as synonymous with semiconductors as the corresponding name Taiwan Semiconductor Manufacturing Company (TSM -0.03%)the largest semiconductor foundry in the world. TSMC pioneered the foundry model, producing the chips that other companies design on their behalf.

Providing the infrastructure to make much of the world’s semiconductors has long put TSMC in a profitable position, and recent developments in artificial intelligence (AI) have added to its momentum. That’s partly why the stock is up an impressive 68% this year as of Aug. 28.

AI applications like OpenAI’s ChatGPT, ABC Gemini and other generative AI tools have taken the world by storm. Their popularity has sparked an artificial intelligence gold rush that has led companies in nearly every sector to see how they can use it to improve their businesses.

AI systems depend heavily on access to large amounts of data and the computing power to process it quickly and efficiently. That power comes from high-performance computing (HPC) chips like graphics processing units (GPUs) and AI accelerators, and that’s where TSMC comes in.

TSMC is one of the few players capable of producing high-end chips for companies like Nvidia — chips with the processing power needed to train and run complex AI models. In the second quarter, revenue from HPC chips rose 28% from Q1 and accounted for 52% of TSMC’s total revenue of $20.8 billion — surpassing 50% for the first time.

TSM Revenue Data (Quarterly) by YCharts.

With many tech companies depending on TSMC to produce their chips, AI revenue is expected to exceed 20% of total revenue by 2028. This trend should work in TSMC’s favor in the near future.