This Semiconductor Stock Is All You Need To Be Buying

There’s a semiconductor stock in the market that Wall Street is quickly learning to appreciate, and the sooner you get in, the better. That stock is Taiwan Semiconductor (NYSE:TSM). We’ve all heard of it, but very few of us genuinely have good exposure to it.

Your portfolio likely owns Nvidia (NASDAQ:NVDA | NVDA Price Prediction), Broadcom (NASDAQ:AVGO), AMD (NASDAQ:AMD), and a whole lot of other “fabless” chipmakers. The “fab” in fabless stands for fabrication, or manufacturing. These chipmakers derive their bread and butter from chip designing, not chipmaking. Taiwan Semiconductor is the company that actually does the chipmaking. With that in mind, the logical outcome is that this should be a significant holding in your portfolio, equal to or even larger than NVDA.

Most portfolios often end up placing TSM’s weight below even AMD.

Wall Street is rectifying its mistake in real time

One thing you may have noticed is that most major chip stocks have been trading sideways in the past couple of months. NVDA stock is up a mere 2.3% during that timeframe, and others have done even worse.

TSM has been an outlier among the pack because it hasn’t been resting on its laurels. The stock is up 34.4% in the past six months and up over 149% in the past year. You can argue that NVDA and others trading sideways have allowed their financials to catch up (I don’t disagree with that), thereby making them a better deal. But at the same time, one can argue that Taiwan Semiconductor’s position in the market warrants a far higher premium.

The market appears to be making the same argument, as TSM stock is receiving a richer valuation as time goes on. You’re paying over 26 times forward earnings for the stock today. That’s more expensive than most of its fabless counterparts.

TSM holds all the cards

The extraordinary pricing power this one company has cannot be overstated. TSMC captured 69.9% of the global foundry market in 2025. If you take China out of the picture, this market share obviously rises much higher. The second-largest company after TSMC in its market is Samsung at just 7.2%.

If you are a fabless company building premium AI chips, smartphone processors, or other top-tier compute silicon, there are not many places you can go with confidence on volume, yield, and timing. TSMC is in a very good spot, and it is yet to tighten the noose around these fabless chipmakers. I expect it to do so in the coming years.

What do I mean by tightening the noose?

Taiwan Semiconductor’s net margin stood at 45% in the past year. This is stellar, but worse than Nvidia’s 55.6% net margin. TSMC has been rather conservative and mindful of charging more, but it won’t be this way forever. Available capacity is narrowing, and this might warrant more aggressive pricing soon.

Where I see TSM stock in the coming years

First things first, are you getting the best bang for your buck with this stock? I would say no if you just look at that PE ratio, but the more you zoom out and look into the future, the better it gets.

Sales growth is expected to accelerate from 19% annually over the past five years to 27% annually on average. EPS growth is also expected to rise by over 28% annually. I expect EPS to rise even faster once TSM makes use of its pricing power, likely over 30% annually. Regardless, even these base case figures will let TSM stock outperform the broader market in the coming years if the premium is held.

And most importantly, the competition is just not there. If you’re going heavy on Nvidia, there’s a chance a competitor will emerge and start eroding their margins. AI is moving very fast, so it’d be foolish to rule out that possibility.

On the other hand, betting on TSM stock means you’re betting on the whole sector, plus any fabless competitors from the future. That’s why I think this is the only stock you need to be buying for semiconductor exposure.