What Is One of the Best AI Stocks to Buy Before the Next Market Rally?

Key Points

• TSMC makes the chips that power AI, and higher demand means more business.

• The chipmaker has other categories, too, that give it a varied business.

• Taiwan Semi stock trades at an attractive valuation now.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

The market took a break from its recent rally last week after Federal Reserve Chairman Jerome Powell made some pessimistic remarks about the economy.

He did lower rates by a quarter of a percent, and he's planning to make two more cuts, in October and December. However, it's not because inflation has been tamed; rather, unemployment is rising, and the hope is that an expanding economy will produce more jobs without leading to higher inflation.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

While the market's rise takes a little break, consider buying Taiwan Semiconductor Manufacturing (NYSE: TSM) stock. Here's why.

Image source: Getty Images.

A major part of the AI revolution

Taiwan Semi is a chip foundry, so it does a lot more than artificial intelligence (AI). Before AI became the revolutionary technology that it is today, the company had an excellent business manufacturing the chips designed by its clients to power technology like gaming and autonomous vehicles, and these and other categories are still an integral part of its business.

But it plays in important role in the AI process. As companies like Amazon and Microsoft need ever-growing amounts of power, and companies like Nvidia and Advanced Micro Devices have increasing demand for their chips, they rely on Taiwan Semiconductor to produce them.

Taiwan Semiconductor stock is up 38% year to date, and it dipped last week along with the broader market. It trades at the reasonable valuation of 24 times forward 1-year earnings, and it's a great entry point into a growth stock that has years of opportunity ahead.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

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Jennifer Saibil has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool 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.