Spending for all things AI is ramping up.
Shares of Taiwan Semiconductor Manufacturing (TSM -1.21%) have soared over the last year, largely due to the soaring demand for cutting-edge chips capable of handling artificial intelligence (AI) workloads and a rebound in the broader semiconductor sector.
TSMC, as the company is also known, is the world’s largest contract manufacturer of semiconductors, serving companies like Apple, Nvidia, Broadcom, and AMD. It controls more than half of the third-party foundry market and is responsible for an estimated 90% of the advanced chips churned out by third-party manufacturers.
That makes TSMC one of the most important companies in the world, as semiconductors are essential components in most modern technology.
Its revenue growth has been accelerating and it has been generating strong margins. The chart below helps show why the stock has jumped by 99% over the last 12 months.
Cloud infrastructure spending is soaring
Amazon, Microsoft, and Alphabet are the biggest cloud infrastructure providers in the world, and all three have ramped up their capital expenditures over the last four quarters as the AI boom has gathered momentum.
GOOGL Capital Expenditures (Quarterly) data by YCharts.
Combined, those three companies have added about $17 billion in capital expenditures to build new data centers and meet demand for the processing power to underpin new generative AI technologies. While some investors have criticized Microsoft and Alphabet, suggesting that they have been overspending on AI infrastructure, those companies have defended those investments, insisting that the risks of underspending and losing the AI race are greater than the risks of overspending.
A significant slice of that added spending is going toward chips that come out of TSMC’s facilities, as the foundry giant manufactures plenty of high-end chips on behalf of Nvidia and others. As long as those companies are ramping up their capital expenditures, investors can expect TSMC stock to keep outperforming.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.