Taiwan Semiconductor's Latest Move Shows It's a Screaming Buy

Taiwan Semiconductor (NYSE: TSM) is among the top stocks in the artificial intelligence (AI) sector. It has a pretty clear bull case: Build more data centers. With its market dominance in the chip space, it doesn't really matter whose computing units are going into these data centers; all that matters is that more of them are being built, and its chips are likely behind every computing process going on inside of them.

That's an incredible position to be in. It also gives TSMC unparalleled vision into the future, as its clients are attempting to project demand to TSMC as best they can, so it has the required production capacity available when the actual demand arrives. So when Taiwan Semiconductor announced another $100 billion investment in building out U.S. production facilities, it's a clear sign that there's more growth to come.

Image source: Taiwan Semiconductor Manufacturing Company.

Taiwan Semiconductor is still a great investment at these prices

During Taiwan Semiconductor's second-quarter earnings call, management announced an additional $100 billion investment into the company's Arizona facility, which helps answer two major questions.

First, it addresses one of the biggest fears surrounding TSMC: Its location. The relationship between Taiwan and mainland China is very complex, and military action is always a threat. This is a major risk investors must consider, and any conflict could spiral into a major war, which would drag the world's markets down. However, by diversifying its production facilities into the U.S., TSMC is eliminating the risk of a single point of failure, which gives investors more confidence in the long-term viability of its stock.

The second item is the long-term health of the AI industry. The worst thing Taiwan Semiconductor could do is overbuild production capacity and have no use for it a year or two later, as it would eat into margins and not provide an ample return on investment. However, CEO C.C. Wei told investors that he believes AI chip demand will remain strong through 2029 or 2030, and he believes there is currently a birth of a new industry ongoing. That could lead to elevated long-term demand, making TSMC a great stock pick.

Despite Taiwan Semiconductor being the primary logic chip foundry for nearly every computing company, the stock trades at an attractive 25 times forward earnings.

TSM PE Ratio (Forward) data by YCharts

With strong growth ahead for Taiwan Semi, I think it's a smart AI stock to buy and hold now, as it allows investors to capitalize on increasing AI build-outs without needing to pick a single winner.

Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.