Why Taiwan Semiconductor Manufacturing Could Be the Next $2 Trillion AI Stock by 2028

This AI Semiconductor Stock Could Join the $2 Trillion Club by 2028

Big tech companies are set to spend a staggering $375 billion on artificial intelligence (AI) infrastructure this year, with projections climbing to $500 billion next year. The primary driver behind this spending? Semiconductors. These tiny chips are the backbone of AI data centers, powering complex computations and AI training processes.

Nvidia (NASDAQ: NVDA) has been the standout beneficiary. Its GPUs dominate AI training and inference, securing massive contracts and growing sales. Broadcom (NASDAQ: AVGO) is also riding this wave, with AI chip revenue surging 46% year over year last quarter. However, Broadcom’s business is broader than just AI chips, including networking equipment and software platforms like VMware.

Broadcom’s Growth and Challenges

Broadcom’s AI revenue hit $4.4 billion last quarter and is expected to accelerate to $5.1 billion this quarter. AI now accounts for about 30% of Broadcom's sales, with growth driven by both semiconductor and software divisions, especially after its integration of VMware. The VMware Cloud Foundation subscription has boosted recurring revenue significantly.

Despite this growth, Broadcom’s stock trades at a high forward P/E ratio of 45. While AI chip sales are expanding quickly, the company’s overall revenue growth remains around 20% annually. Incremental margin improvements are expected, but not enough to justify the current valuation fully. Investors should be cautious about Broadcom’s broad business mix diluting the pure AI growth story.

The Semiconductor Giant Set to Hit $2 Trillion

Behind many leading AI chipmakers, including Nvidia and Broadcom, is Taiwan Semiconductor Manufacturing Company (TSMC) (NYSE: TSM). TSMC manufactures and packages the advanced chips designed by these companies. Its dominance in semiconductor manufacturing is unmatched, with over two-thirds market share in leading-edge chip production.

TSMC benefits from a cycle where its technological edge wins contracts, which in turn funds research and capacity expansion. Its next-generation process node, N2, is priced at a 66% premium over the previous generation, reflecting strong demand for better power efficiency and performance. Despite the usual margin pressure when ramping up new nodes, this pricing supports stable margins for years.

Management projects AI-related revenue growth of around 45% annually from 2024 to 2029. While AI chips are still a smaller slice of TSMC’s total business, overall revenue is expected to grow by roughly 20% per year. This, combined with margin stability, should drive operating earnings growth above 20% annually.

TSMC’s current forward P/E ratio of 24 is far more reasonable than Broadcom’s. If TSMC can maintain this multiple and deliver consistent earnings growth, its market cap could exceed $2 trillion by 2028, joining the ranks of Nvidia, Microsoft, Apple, Alphabet, and Amazon.

What This Means for Investors

• TSMC offers exposure to AI growth with a diversified semiconductor manufacturing business.
• Its pricing power and technological leadership create strong barriers to entry.
• Compared to Broadcom, TSMC’s valuation is more attractive relative to its growth prospects.
• Investors seeking AI-related semiconductor plays should consider TSMC’s potential for sustained earnings growth and market cap expansion.

For finance professionals tracking AI infrastructure investments, TSMC represents a compelling opportunity as AI demand continues to surge. The company’s strategic position in the chipmaking supply chain makes it a critical player in the AI ecosystem’s future.

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