The top four AI hyperscalers will spend approximately $650 billion on data center capital expenditures by 2026, so there are many companies planning to profit from this. While some may question how much funding Amazon, Microsoft, letterand meta platform But the reality is that the need for AI is real, and any company that doesn’t spend as much money as possible to gain a foothold in the industry will be left behind.
There are multiple ways to do this kind of spending, but my favorite so far is TSMC (NYSE:TSM). Regardless of which compute unit is used, TSMC is going to be the winner, so buying it now is a no-brainer.
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There are only a handful of chip companies that can compete with TSMC. Intel (NASDAQ: INTC) It was once one of them, but its chip foundry business is in trouble and is struggling to compete with TSMC. Additionally, as TSMC builds factories stateside, it becomes less of an attractive option. Another option is Samsung. Samsung’s capabilities are better than Intel’s, but it has little ability to compete with TSMC.
This makes it really the only option available, which is why TSMC’s customer list includes people like NVIDIA, AMDand Broadcom. Whether the data center of one of the four hyperscalers uses Nvidia’s graphics processing units (GPUs) or Broadcom’s custom-designed chips, there’s a good chance the chip originates from a TSMC factory.
This makes TSMC a neutral player in AI, as it is set to make big money as long as AI spending continues. From a management perspective, it may take some time for AI spending to slow down.
TSMC management noted that between 2024 and 2029, they expect AI chip revenue to grow at a compound annual growth rate (CAGR) of nearly 60%. That’s huge growth and demonstrates the scale and longevity of the AI buildout that’s still going on.
Despite the huge growth in AI spending fueled by all the big projects, TSMC stock isn’t trading at a huge premium.
Since the stock trades at 26 times forward earnings, it’s no better than S&P 500 Index (SNPINDEX:^GSPC)which is priced at 22 times expected earnings. While the stock isn’t as cheap as it once was, it’s still a great buy right now as it’s a great way to play into the building blocks of artificial intelligence.
