TSMC: The Unsung Hero Quietly Dominating Nvidia in the AI Race

Nvidia has been the undisputed darling of Wall Street, but another company is quietly outperforming it. Taiwan Semiconductor Manufacturing (TSMC) is essential to the success of Nvidia and other major chipmakers. TSMC's stock is up 45% this year, exceeding Nvidia's 41% gain.

TSMC's Foundry Dominance

Taiwan Semiconductor Manufacturing (TSMC) is the world's largest semiconductor fabricator. They don't design chips, but they build them for giants like Nvidia, Broadcom, AMD, Apple, and Tesla. TSMC holds about 70% of the foundry market, making it a crucial player.

Nvidia's CEO, Jensen Huang, has praised TSMC as a world-class foundry that supports diverse customer needs. TSMC's strength lies in manufacturing cutting-edge 3-nanometer and 5nm chips. These advanced chips are essential for companies looking to enhance the power of their devices.

Advanced Chip Production

TSMC is among the few companies capable of mass-producing these highly sought-after 3nm chips. Smaller transistors on chips allow companies to pack more power into their products. TSMC plans to begin mass production of its 2nm process this year, further solidifying its lead.

TSMC also produces semiconductors for smartphones, enabling 5G communication for a broad audience. This technology allows users to access the internet at broadband speeds. These chips also support various applications from streaming high-resolution content to remote work.

Financial Performance and Expansion

In the second quarter, TSMC's revenue reached $30.07 billion, a 44.4% increase year-over-year, with a net profit margin of 42.7%. The company anticipates even better results for the next quarter, projecting revenue between $31.8 billion and $33 billion. TSMC is investing $165 billion to expand its fabrication plants and facilities in Arizona.

This move is crucial to protect TSMC from potential tariffs and economic challenges. It also supports the U.S. government's efforts to bring manufacturing back to American soil. TSMC's dominance in the semiconductor industry makes it an appealing investment.

Investment Recommendation

The semiconductor industry is a $600 billion market expected to reach $1 trillion by 2030. This presents a substantial opportunity for Taiwan Semiconductor. The company also offers a dividend, a rare find among artificial intelligence stocks. All told, TSMC is essential to both the semiconductor and artificial intelligence industries.

TSMC's dividend yield of 1.2%, or $3.34 per share, is significantly better than Nvidia's skimpy $0.04 annual payout. Investing in both TSMC and Nvidia could create a powerful AI combination for any portfolio.