Key Points
Forecasting stock winners is challenging. Earlier this year, a series of articles projected which Magnificent Seven stock would deliver the best returns. The author’s top choice, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), has gained about 7% year‑to‑date, whereas the lowest‑rated pick, Apple (NASDAQ: AAPL), has risen nearly 20%.
Nvidia (NASDAQ: NVDA) continues to lead the pack, and there is much to admire about Jensen Huang’s leadership. Its latest earnings report revealed revenue of $96.2 billion, representing a 106% increase year‑over‑year. Moreover, the upcoming Vera Rubin processors are projected to generate substantial profits, with Nvidia describing them as the fastest‑ramping product in its history.
But Nvidia does not dominate the market alone; competition is intensifying. Alphabet has developed its own Tensor Processing Units, an in‑house alternative to Nvidia’s offerings, designed for Google Cloud and now offered as TPU capacity. Meanwhile, Amazon’s (NASDAQ: AMZN) custom silicon division is expanding, recently surpassing a $25 billion annual run rate, with its Trainium and Inferentia chips tailored for AWS workloads.
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Meta Platforms (NASDAQ: META), Microsoft (NASDAQ: MSFT), and Tesla (NASDAQ: TSLA) all rely on Nvidia for their AI hardware needs. In contrast, Apple develops its own silicon and pursues a distinct AI strategy, concentrating on integrating AI features directly into its operating systems.
These firms share a key characteristic: each is a customer of another trillion‑dollar publicly traded company. For this reason, the author believes Taiwan Semiconductor Manufacturing (NYSE: TSM), the world’s largest contract chip maker, represents a superior investment compared with any individual Magnificent Seven stock.
TSMC is “magic”
Nvidia and Apple rank as the two largest corporations globally, and both are major clients of TSMC. Apple plans to purchase more than 100 million advanced chips from TSMC’s Arizona facility this year. Nvidia CEO Jensen Huang has praised TSMC highly, once describing it as “one of the greatest companies in the history of humanity,” and in another interview remarked that the “magic” of TSMC cannot be overstated.
Other members of the Magnificent Seven also rely on TSMC. Meta Platforms, which is pursuing superintelligence and free personal AI assistants, is designing custom AI chips in partnership with Broadcom while using TSMC as the manufacturing foundry.
TSMC additionally fabricates Amazon’s custom silicon and supplies the silicon that Alphabet employs to produce its TPUs, again working alongside Broadcom.
TSMC CEO C.C. Wei highlighted the growth of agentic AI, noting that this trend is boosting demand for central processing units (CPUs) in data centers. He explained: “The rise of agentic AI is reviving the role of CPUs in AI data centers, increasing silicon demand alongside AI accelerators. We view this as advantageous for TSMC, since virtually all CPU architectures—x86, Arm‑based, or RISC‑V—rely on its foundry services.”
Data by YCharts
TSMC’s results speak for themselves
For additional evidence of TSMC’s strength, one need only examine its year‑to‑date performance.
TSMC has outpaced every Magnificent Seven constituent this year, delivering a return of almost 36%. Over the past twelve months, its gain reaches approximately 78%, again exceeding the performance of each Magnificent Seven stock.
Data by YCharts
Second‑quarter revenue totaled $40.2 billion, a 33.7% increase year‑over‑year. Gross margin stood at 67.7%, while net profit margin came in at an impressive 55.6%.
The author anticipates further improvement. TSMC commenced production of its new 2‑nanometer process chips in the second quarter. These devices, which provide greater density and energy efficiency, represented just 3% of wafer revenue during Q2, but the share is expected to rise as sales expand.
TSMC is also expanding its U.S. footprint, recently pledging an additional $100 billion for construction at its Arizona fabs. This brings the total investment in the Arizona site to $265 billion.
The case for TSMC
TSMC is already outperforming the Magnificent Seven this year, as investors acknowledge its pivotal role in AI expansion. This trend is likely to persist, especially as Magnificent Seven companies increasingly turn to TSMC for silicon supply or chip manufacturing.
With the rollout of 2 nm technology and a leading stance in the foundry market, TSMC is well positioned to continue delivering robust revenue and profit growth for shareholders.
Should you buy stock in Taiwan Semiconductor Manufacturing right now?
Before considering an investment in Taiwan Semiconductor Manufacturing, note the following:
Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Broadcom, Meta Platforms, Microsoft, Nvidia, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.
