Here’s a $1 Trillion Artificial Intelligence (AI) Chip Stock to Buy Hand-Fisted While It’s Still a Bargain

There are currently 10 public companies in the world with a market capitalization exceeding $1 trillion. Among the new entrants in the trillion dollar club is chip stocks Taiwan semiconductor manufacturing (NYSE: TSM).

In 2024, the company, also known as TSMC, gains 90% — essentially doubling the company’s market cap from $500 billion to more than $1 trillion today. In fact, that’s a steep valuation increase in just 12 months, but what if I told you the stock is still a bargain?

Below, I’ll break down why TSMC is so attractively priced right now and why it should be on growth investors’ radar.

In the table below, you can see TSMC’s annual growth numbers for both revenue and profit over the past several quarters:

Data source: Taiwan Semiconductor. Yui = year on year.

Over the past 12 months, TSMC has rapidly accelerated top-line growth. But more importantly, the company’s gross margin is expanding, leading to strong earnings growth as well. With a financial profile like this, it makes sense for TSMC stock to soar to new heights.

Furthermore, industry trends indicate that the company’s long-term growth potential appears equally strong. Passover hyperbole like Microsoftand alphabetand Amazonand oracle All plan on Spending billions on AI infrastructure over the next few years, which will require TSMC’s leading foundry operations.

To my eyes, the revenue and earnings forecasts above suggest that TSMC is well positioned to continue capturing a significant portion of AI spending as new data centers and chip software come onto the scene.

However, even with its impressive revenue outlook and earnings per share, TSMC stock is expensive.

It’s understandable to believe that you’ve already missed the boat with TSMC. Stocks don’t rise at a 90% pace forever, and the trillion-dollar valuation could give the illusion that TSMC shares don’t have much higher to go.

Shares are trading at $223 as of this writing—nearly an all-time high. Looking at the momentum TSMC is tasting could indicate that the stock is overvalued.

However, even with its high stock price, TSMC’s price-to-percentage (P/E) ratio is just 25. I say “only” because the average P/E of S&P 500 He is 24.

As I explained in the table and chart in the previous section, TSMC is a rare example of a business that is accelerating top-line growth. Importantly, the company’s EPS growth is climbing at a faster rate than sales. It’s important to understand because when TSMC is analyzed using earnings-based methodologies, the company’s valuation starts to make more sense.

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