Better AI Stock: Taiwan Semiconductor Manufacturing or AMD

Two of the biggest names in the AI investing world are Taiwan Semiconductor Manufacturing (NYSE: TSM) and AMD (NASDAQ: AMD). Each of these stocks had a strong 2025, with AMD rising 77% and TSMC increasing by 54%.

However, 2025 is in the past. What matters now is how these stocks will grow over the next five years, as AI spending is expected to grow throughout at least 2030.

Does either stock have an advantage over the other? Let's take a look.

Image source: Getty Images.

AMD uses TSMC chips

While each of these stocks may be labeled as a "chip" company, that definition needs further refinement. AMD designs chips that are used in PCs, gaming devices, and AI graphics processing units (GPUs). However, it outsources the manufacturing work to varying suppliers. TSMC is one of those suppliers, and it is utilized by many of the leading computing companies. So, a better way to label these companies is to call AMD a chip designer and TSMC a chip fabricator.

This also leads to each company marketing to a different client base. TSMC only has to inform a handful of companies of its capabilities. Because it's so well-known and widely utilized, it really doesn't have to convince any client of its capabilities; it's already the industry standard.

AMD is different. It's going up against some major competition. Nvidia is currently the king of AI computing hardware, as it has developed the best technology stack to run AI workloads. Additionally, there is rising competition from Broadcom and its custom-designed AI chips specifically tailored for each AI hyperscaler's workload. AMD is often seen as a third option, as it hasn't been a popular pick for nearly any AI competitor. AMD has a lot of work to do to catch up to the competition, but management believes that it has made the proper improvements to make that happen.

AMD's management noted that downloads for its GPU controlling software, ROCm, increased 10 times year over year in November 2025. That's significant because it shows more developers are investigating cheaper AMD hardware versus Nvidia's. Furthermore, AMD's management believes that its data center division can generate a 60% compound annual growth rate (CAGR) over the next five years, with a companywide growth rate of 35%. That's a lofty projection, and if it pans out, AMD could be a great stock to own.

TSMC's management team offers similar guidance. For the five years starting in 2024 and ending in 2029, it expects AI chips to deliver nearly a 60% CAGR, although the companywide growth rate will be around 25%.

This brings up an interesting comparison point: Would you rather own a stock that isn't executing as well right now, but has greater future potential, or a stock that's delivering excellent results now and is expected to do so in the future, but doesn't have as high a ceiling? That's the AMD versus TSMC argument in a nutshell. So, which is the better buy?

TSMC is the clear-cut winner

To me, TSMC takes the cake. As long as there is AI spending, odds are TSMC will continue to be an excellent stock investment. Its chips go into Nvidia, Broadcom, and AMD-designed chips, and would likely go into another competitor's product should one arise. TSMC is about as surefire a bet as you're going to get in the AI realm, making it a great buy.

AMD is much higher risk with greater uncertainty, but until it starts showing that it can actually deliver the growth levels it gave in its projections, I'm an AMD skeptic.

As a final nail in the coffin, TSMC's stock is far cheaper than AMD's.

TSM PE Ratio (Forward) data by YCharts

At 24 times forward earnings versus 38, TSMC's stock is just too cheap to pass up for its ongoing success.

I think TSMC is a surefire bet, although AMD may produce superior returns if everything pans out the way management believes. However, I'm not going to pass up 20% or greater annual returns for something slightly better, making TSMC the top stock pick.

Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.