To The Moon

The chipmaker fuelling the AI boom—quietly, precisely, and profitably.

When I think about the AI revolution, I’m less interested in the splashy names and more intrigued by who’s quietly powering the party behind the curtain. Everyone knows Nvidia’s dominance in the world of AI chips. But fewer realise that without $Taiwan Semiconductor Manufacturing(TSM)$, or TSMC, even Nvidia’s most advanced silicon would remain just a clever design on paper. That, in my view, is what makes TSMC one of the most strategically essential companies in the global AI stack—and a long-term compounder worth serious investor attention.

Let’s not kid ourselves. This is no high-flying moonshot stock promising future greatness. This is a behemoth worth $1.218 trillion, with decades of operational credibility and a customer roster that reads like a Who’s Who of technology. But what makes TSMC so compelling today is how decisively it has embedded itself into the very heart of artificial intelligence.

The force behind the curtain that powers the AI skyline

Dominance where it counts most—at the bleeding edge of performance

We’re at the beginning of a global AI supercycle, and performance is king. Everyone from Big Tech to national governments wants faster, smarter chips that can handle enormous compute workloads. And that’s where TSMC has carved out a commanding position. Not only does it manufacture over 90% of the world’s most advanced chips, it’s also producing the backbone of Nvidia’s H100 and Blackwell GPU families. These are the processors powering AI training clusters at hyperscalers like Microsoft, $Alphabet(GOOGL)$, Meta and $Amazon.com(AMZN)$.

That manufacturing dominance gives TSMC significant pricing power. Despite the capital-intensive nature of chip fabrication, its gross margin stands at a formidable 54.7%, while operating margin hovers near 46%. It’s rare to see this kind of profitability in an industry where even minor yield issues can tank margins. However, with Intel Foundry Services pushing hard and Samsung throwing billions at catching up, the margin cushion may not remain so generous forever. Cost competition could intensify, especially in less advanced nodes where differentiation is thinner.

Still, for now, the numbers tell a story of strength. In the first quarter of 2025, revenue jumped 41.6% year over year to $25.5 billion. High-performance compute chips—largely AI-driven—now account for 59% of the company’s top line, up from just 41% three years ago. That kind of mix shift isn’t cyclical—it’s structural. It tells me that TSMC is no longer just a supplier to the smartphone cycle. It’s becoming the foundational layer of compute for the modern AI economy.

TSMC isn’t just trending — it’s accumulating strength across the chart and the balance sheet.

Breaking out and building conviction — not just price, but power

Spreading the risk, deepening the moat

Of course, you can’t talk about TSMC without addressing the elephant in the room: Taiwan. Rising geopolitical tension with China continues to cast a shadow over the island’s future, and no investor can afford to ignore that risk. Taiwan remains the world’s single point of failure for advanced chipmaking, and that’s both its strategic power and its greatest vulnerability.

TSMC knows this better than anyone. Rather than waiting for the political winds to shift, it’s building meaningful manufacturing capacity abroad. The new fabs in Japan and Arizona are under way, with Germany in the pipeline. But let’s keep it real—these facilities won’t be matching Taiwan’s output any time soon. The first Arizona fab is set to begin volume production in 2026, and even then, will represent a fraction of the capacity at home. That said, the effort signals a longer-term shift in supply chain resilience and client confidence.

It also builds trust with governments, many of whom are now subsidising semiconductor sovereignty. Japan’s government is funding roughly half the cost of the new Kumamoto fab. That’s not just capital relief—it’s strategic alignment.

Of course, international expansion isn’t plug-and-play. Hiring and training a high-skill semiconductor workforce outside of Taiwan is complex, and TSMC has already admitted to cultural and logistical challenges in Arizona. There's also the issue of cost—fabs in the US can be up to 50% more expensive to operate than in Asia. The company is navigating it, but the execution risk is real.

From cyclical supplier to global enabler of AI

One insight that many investors overlook is the sheer capital intensity of staying ahead in the foundry business. TSMC spends more than $30 billion a year in capital expenditure just to remain on the cutting edge. Developing nodes below 2 nanometres doesn’t come cheap, and those costs will only rise. But here’s the twist: that enormous investment is also what keeps competitors out. Very few companies on earth can match that level of sustained R&D and infrastructure commitment.

TSMC’s clients don’t just choose it for cost—they choose it because no one else can produce at such precision, scale, and yield. And when you’re talking about chips that cost thousands of dollars apiece and power billion-dollar training clusters, failure isn’t an option.

Its current valuation—trading at 27.5 times earnings—is far more palatable than $NVIDIA(NVDA)$ at north of 70x, or $Broadcom(AVGO)$ pushing 30x. TSMC may not be cheap in an absolute sense, but it’s attractively valued for its moat, margins and market position. With a forward dividend yield of 1.45% and a payout ratio under 32%, it also offers income without compromising reinvestment firepower. Free cash flow last year came in at $26.57 billion—not breathtaking, but robust for a capital-heavy operator navigating cutting-edge manufacturing.

Building the AI world, one wafer at a time

From Taiwan to the world: wiring the AI future together

If AI is the new electricity, TSMC is the global utility quietly wiring the infrastructure. It’s the rare kind of business that makes almost everything we care about in tech actually work. And while the headlines will continue to gravitate toward Nvidia’s blowout quarters or Microsoft’s AI integrations, TSMC is patiently minting cash in the background.

With 220% total return over three years and a five-year gain of over 335%, TSMC has already proven its mettle. But with sovereign AI, autonomous vehicles, and global data centre expansion just getting started, I believe there’s a lot more runway ahead.

In a noisy market obsessed with the next big AI disruptor, I’d rather own the enabler that’s too essential to fail, too advanced to copy, and still—just quietly—outperforming the rest.

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