The field of artificial intelligence is one where a lot of cash is spent. AI hyperscalers appear to be kicking themselves into trouble and spending as much money as possible to build their own computing power. Some companies are benefiting from this massive spending boom. One of my favorites is TSMC(NYSE:TSM)which provides many chips used in AI computing units.
I think TSMC is one of the best investment options right now, and its stock price could triple over the next five years if predictions for AI buildout come to fruition.
Image source: Getty Images.
If I asked you what the most important company on earth is, you would probably answer one of the tech giants, like NVIDIA(NASDAQ: NVDA) or apple(NASDAQ:AAPL). While these are all reasonable answers, remember that these businesses only design the product; they don’t manufacture it. Both companies outsource chip production to TSMC, and their technologies wouldn’t be possible without the impressive capabilities developed by TSMC.
In the world of high-end chips, there are really only two foundry options: Samsung and Intel. Intel is struggling to find customers for its foundry unit due to chronic underperformance, while Samsung often competes with customers in non-foundry business, making it a less popular choice. This puts TSMC in a league of its own and is why it is the largest semiconductor manufacturer by revenue.
TSMC, which supplies most of the world’s high-end chips and has invested heavily in artificial intelligence data centers, is expected to benefit from the expansion. Nvidia believes that annual capital expenditures on global data centers will increase to US$3 trillion to US$4 trillion by 2030, which is five times lower than the expected value of US$600 billion in 2025. AMD(NASDAQ:AMD)One of Nvidia’s main competitors believes its data center segment can grow at a compound annual growth rate (CAGR) of 60% by 2030. A compound annual growth rate of 60% over five years represents nearly 10x growth, which is almost unbelievable.
But if the two companies’ predictions of a big jump in AI spending are correct, more chips will be needed. This will put TSMC in a good position to thrive. With this spending, that number is likely to triple over the next five years. It’s up about 260% in the past three years, more than tripling.
While TSMC’s revenue has risen as the AI ​​arms race intensifies, its free cash flow has remained fairly stable of late, despite growing 70% over the past three years.
TSM revenue (quarter-to-quarter growth) data provided by YCharts
This is because TSMC must increase production capacity, including investing $160 billion in US production facilities. Those investments have paid off handsomely for TSMC, as they have allowed it to circumvent import tariffs by moving manufacturing stateside.
Once TSMC’s U.S. factory is up and running and it doesn’t require significant cash investments, TSMC’s free cash flow should increase significantly, allowing it to increase stock buybacks or pay dividends. While it may choose to continue reinvesting in itself by adding capacity – a decision that has already paid off hugely.
If AI buildout proceeds at the pace many informed companies think it will, TSMC is a smart choice. I think the stock could easily triple over the next three years, but the returns could be even greater if the AI ​​market reaches Nvidia’s projected levels.
Before buying TSMC stock, consider the following factors:
this Motley Fool Stock Advisor The analytics team has just identified what they believe is 10 Best Stocks For investors to buy now… and TSMC is not one of them. The 10 stocks selected could generate huge returns in the coming years.
consider when Netflix This list was created on December 17, 2004… If you invested $1,000 when we recommended, You will have $540,587!* or when NVIDIA This list was created on April 15, 2005… If you invested $1,000 when we recommended, You will have $1,118,210!*
Now, it’s worth noting stock advisor The overall average return is 991% — Outperformed the market compared to the S&P 500’s 195%. Don’t miss the latest top 10 list, available via stock advisorand join an investment community built by individual investors for individual investors.
See 10 stocks »
*Stock Advisor returns as of December 1, 2025
Keithen Drury works at Nvidia and TSMC. The Motley Fool owns and recommends Advanced Micro Devices, Apple, Intel, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
This ATM Stock Will Triple in the Next 5 Years Originally Posted by Motley Fool
