The 1 AI Chip Stock I'd Buy Hand Over Fist in This Sell-Off -- and It Isn't Nvidia.
Taiwan Semiconductor Manufacturing (TSM) is the company that manufactures leading-edge chips for nearly every side of the AI chip trade. Despite the sell-off, TSM's revenue rose 33.7% year over year to $40.2 billion, and net income jumped 77.4% year over year to a fresh r…
Intelligence analysis by Llama
Taiwan Semi's record quarter was overshadowed by the market's focus on the AI chip trade's sell-off. However, the company's grip on leading-edge manufacturing and its accelerating profit growth make it an attractive bet in this environment.
Imagine you're building a really powerful computer, and you need special chips to make it work. Taiwan Semi makes those chips, and they're really good at it. They're like the LEGO bricks of the computer world, and lots of companies need them to make their computers work. That's why Taiwan Semi is a good stock to buy, even if the market is being a little scared right now.
Analysis
A Record Quarter the Market Shrugged At
Taiwan Semi reported second-quarter results on Thursday, and they were exceptional. Revenue rose 33.7% year over year to $40.2 billion. Net income jumped 77.4% year over year, reaching a fresh record. Gross margin came in at 67.7%, its fourth straight quarter of expansion, up from 59.5% in the third quarter of 2025.
Why Taiwan Semi Matters
Taiwan Semi doesn't have the same problem as Nvidia. Those custom chips still have to be manufactured somewhere, and the leading-edge capacity to build them is overwhelmingly Taiwan Semi's. The company manufactured 12,682 products for 534 customers in 2025. Owning the stock is a bet on AI computing demand itself, not on any one design winning.
A Compelling Choice in This Environment
Taiwan Semi trades at about 30 times trailing earnings at its price of around $410 as of this writing -- roughly in line with Nvidia, for a business whose profit growth is accelerating and whose margins keep expanding. Of course, there are reasons the market hesitated on Thursday. Alongside the record results, management raised its 2026 capital spending plan to $60 billion to $64 billion, at least $4 billion above its prior forecast, and pledged an additional $100 billion investment in Arizona. Spending at that scale could pressure margins over time. The bigger risks are older ones. Most of the company's production still sits in Taiwan, with all the geopolitical uncertainty that entails. And the semiconductor industry has never stopped being cyclical. But at this valuation, I think investors are getting the company that manufactures nearly every leading-edge AI chip, at close to Nvidia's multiple, without having to guess which designs win.
Key points
- Taiwan Semi reported record second-quarter results, with revenue rising 33.7% year over year to $40.2 billion.
- Net income jumped 77.4% year over year to a fresh record.
- Gross margin came in at 67.7%, its fourth straight quarter of expansion.
- Taiwan Semi's leading-edge manufacturing capacity is a key differentiator in the AI chip trade.
- The company's strong demand for its 7-nanometer and smaller process technologies bodes well for its future prospects.
If Taiwan Semi continues to manufacture leading-edge chips for the AI industry, its profit growth could accelerate even further. The company's strong demand for its 7-nanometer and smaller process technologies also bodes well for its future prospects.
Taiwan Semi's production still sits in Taiwan, which means it's exposed to geopolitical uncertainty. The semiconductor industry is also cyclical, which means that demand for Taiwan Semi's chips could slow down in the future.
