You may have heard that semiconductor stocks such as Nvidia have ballooned in value over the last couple of years, and do you know why? The answer is actually quite simple. Nvidia develops chipsets known as graphics processing units (GPUs), which are a critical piece of infrastructure used in generative AI. Nvidia is widely regarded as one of AI’s most influential players, and has amassed an estimated 88% command of the GPU market.
However, the GPU landscape includes far more opportunities than Nvidia. Below, I’m going to break down why I see chip manufacturing specialist Taiwan Semiconductor Manufacturing (NYSE: TSM) as the best opportunity in the chip space over the next decade.
Why the next 10 years could be massive for Taiwan Semiconductor
According to Precedence Research, the global GPU market is currently valued at $75.8 billion. Precedence forecasts that the GPU market will expand at a compound annual growth rate (CAGR) of 13.8% between 2024 and 2034 — ultimately reaching a size of $1.4 trillion by early next decade.
Hold up! Why is an expanding GPU market more of a tailwind for Taiwan Semiconductor than Nvidia? Well, the answer is connected to rising competition. While Nvidia owns the GPU realm for now, the company faces direct competition from Advanced Micro Devices as well as peripheral competition from its own customers — including Microsoft, Tesla, Alphabet, Amazon, and Meta Platforms.
It’s entirely possible (and in my opinion, highly likely), that the chips introduced by big tech peers are not as robust as Nvidia’s. However, the idea here is that as companies have more optionality to choose from, pricing is going to play a larger factor in future AI budgeting processes. As a result, Nvidia may not have a choice but to lower its prices, which should hinder the company’s revenue and profit growth.
On the flip side, more variety in the GPU market should better serve Taiwan Semiconductor, which already works with many different chip designers. In a way, Taiwan Semiconductor represents an agnostic view of the chip market. It shouldn’t really matter which company’s chips are experiencing higher demand levels compared to peers. As long as GPUs remain an integral part of AI development, Taiwan Semiconductor should continue to see strong tailwinds in its manufacturing and fabrication operations.
Should you invest in Taiwan Semiconductor stock right now?
Right now, Taiwan Semiconductor trades at a price-to-earnings (P/E) multiple of 32.2. As seen in the chart below, the company’s valuation has surged dramatically over the last 12 months and its P/E is hovering near 52-week highs.
I definitely think Taiwan Semiconductor’s valuation has gotten a little frothy. While the stock isn’t dirt cheap, I still think there’s a case to be made that long-run upside isn’t priced in yet.
The company’s forward P/E multiple of 29 trails that of Nvidia and AMD by a considerable margin (both of which are over 40). To me, Taiwan Semiconductor’s valuation trends suggest that investors are quite bullish on the company’s near-term prospects, but have yet to really consider the long-term picture.
As I alluded to above, the GPU market is expected to grow considerably over the next decade. And during this time period, more products will be introduced to the market — a potential road bump for Nvidia but a catalyst for Taiwan Semiconductor.
I see Taiwan Semiconductor as one of the most compelling opportunities in the broader chip space. Its specialty manufacturing business, combined with a diverse customer roster that could very well expand, should help spur sustained growth for years to come as the GPU market continues to evolve.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
A Once-in-a-Decade Investment Opportunity: Meet My Favorite Artificial Intelligence (AI) Semiconductor Stock (Hint: Not Nvidia) was originally published by The Motley Fool
