Selecting a single artificial intelligence (AI) stock to buy right now is a difficult task. Every stock has its bear and bull cases, but the key is to find one with a far more certain bull than bear case. If I use those criteria to select my top AI stock to buy right now, I come up with Taiwan Semiconductor Manufacturing (NYSE: TSM) as my top pick.
Regardless of what computing hardware a company uses for AI, the road likely leads back to Taiwan Semiconductor. Management is also incredibly bullish on the future, and it has great information that allows it to see a few years into the future.
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Taiwan Semiconductor has a lucrative client base
Taiwan Semiconductor is the leading chip foundry in the world, a position it obtained by staying neutral in the chip race while offering cutting-edge technology. Unlike some of the other chip foundry companies, TSMC isn’t marketing its own product. This gives clients like Nvidia or Apple the confidence that Taiwan Semi isn’t going to steal some of the proprietary chip designs and market them themselves.
Taiwan Semiconductor also has leading technology. Its 3 nanometer chip node is the best available globally, although some other fabrication facilities also have this production ability. But it’s not stopping there. By the end of 2025, TSMC’s 2nm chips will be available, and its 1.6nm chips will be launched in late 2026. The focus on these chips isn’t increased power; it’s improved energy efficiency. When the 2nm chips are configured to run at the same speed as a 3nm chip, they consume 20% to 30% less power. And 1.6nm chips will improve the energy consumption level by 15% to 20% on top of that. With a large focus on how much energy data centers consume for AI training, these chips should prove popular.
Although this is exciting technology, customers aren’t waiting for next-generation chips to be launched; they’re buying what’s available now. This is evident at TSMC’s Arizona production facility, which sold out chip production through 2027. This makes it obvious that TSMC management has an idea of what level of demand is brewing a few years out, and the commentary it’s provided on this subject is incredibly bullish.
Over the next five years, it expects AI-related revenue to increase at a compound annual growth rate (CAGR) of around 45%. Companywide, it expects this growth rate to approach a CAGR of 20%. That’s an impressive level of growth for a company of TSMC’s size, and it underscores the entire bull case for the company.
However, there are some counterarguments to TSMC that investors should know.
Taiwan Semiconductor’s location is the primary risk with the stock
First and foremost, a large risk is Taiwan’s geographical location. Although TSMC announced an additional $100 billion in U.S. chip production facilities and is working on building more production facilities elsewhere in the world, there is still the possibility of a mainland China takeover. The panic and potential ensuing war following such an event would crash the entire market, let alone TSMC.
Another threat stemming from TSMC’s location is President Donald Trump’s tariffs. While there are currently no tariffs on semiconductors, the Trump administration has stated that it’s an area it’s looking to implement some tariffs after further examination. I’m not sure if there will be a semiconductor tariff based on the various trade deals that are rumored to be ongoing, but TSMC is the sole provider of chips for many of its clients. This means that TSMC can force its clients or their customers to eat the cost of tariffs, although it may provide a bit of relief.
Regardless, Taiwan Semiconductor is already building more production facilities in the U.S. to sidestep the tariffs, which is exactly what Trump wants anyway. So, this gesture and plan may be enough to keep TSMC in Trump’s good graces and keep semiconductors off the tariff list.
The bear case for Taiwan Semiconductor’s stock is far weaker than the bull case and relies only on conjecture, rather than hard evidence like the bull case does. With Taiwan Semiconductor’s unique positioning as a key provider for nearly every big tech company, I’m bullish on the stock. It’s a nearly sure-fire investment over the next five years, which is why it’s my top AI stock to buy right now.
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Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
