TSMC Expects AI Chip Revenue to Grow at a 60% CAGR Through 2029. Is the Stock a Buy for 2026?

Perhaps no company holds a stronger position in the artificial intelligence (AI) industry than Taiwan Semiconductor Manufacturing (NYSE: TSM). TSMC (as it is also known) is the primary manufacturer of the most advanced AI accelerators and works with the top design companies in the industry to bring these chips to market.

Amid that positioning, it predicted that AI chip revenue would grow at a 60% compound annual growth rate (CAGR) through 2029. That suggests TSMC stock is a buy.

But is that actually the case? Let's take a closer look.

Image source: TSMC.

TSMC's role in the marketplace

As most AI investors know, TSMC is the world's top manufacturer of advanced semiconductors. It works with all of the top chip companies in this space, including Nvidia, Apple, Advanced Micro Devices, and even Intel, which has attempted to compete more directly with TSMC.

Amid that dominance, TSMC first made its 60% CAGR forecast in 2024, saying the AI chip part of its business would maintain that growth rate through 2029. The company has not explicitly released numbers that confirm that growth, but its market share is increasing.

In the third quarter of 2025, TSMC held 71% of the foundry market share, according to TrendForce. That has risen from 70.2% in the previous quarter and 64.9% in Q3 2024. Additionally, TSMC gained ground on its closest competitor, Samsung. In Q3, Samsung's market share fell to just 6.8%, down from 9.3% in the year-ago quarter.

TSMC has been so successful that its most meaningful competitive threat comes not from other foundries but from its location. Most of its foundry capacity is in the geopolitically contentious island of Taiwan, which has existed under a threat of invasion from mainland China since before the semiconductor industry existed.

China itself also depends on TSMC's chips, which would presumably make such an action less likely. Nonetheless, the possibility was serious enough that Warren Buffett reversed Berkshire Hathaway's investment in that company three years ago. It is a possibility investors should at least consider.

TSMC's financials

The company's financials appear to encourage investment despite the potential risks related to China.

In 2025, its $122 billion in revenue increased by 31%. As previously mentioned, the company did not break down "AI revenue." Still, revenue from high-performance computing (HPC), which was 58% of the company's revenue, rose by 48% over the same period.

Moreover, gross profit surged to 59.9% compared to 56.1% in 2024. Still, with higher income taxes and comprehensive losses, the comprehensive income of $53 billion rose by 33%.

Looking forward, TSMC forecasts a revenue increase in Q1 of 38% at the midpoint. The company declined to offer a specific revenue forecast for 2026, though analysts predict a 31% rise, which would match the 2025 growth level.

Amid such numbers, it is not surprising that the stock's performance far outpaced the S&P 500. In fact, it rose by more than 80% over the last year and just hit a record high.

However, the increase has taken its price-to-earnings (P/E) ratio to 35, the highest level in nearly five years. Even though investors should factor in the aforementioned geopolitical risks, one could argue that its valuation is at a reasonable level given TSMC's AI-driven growth numbers.

Is TSMC stock a buy for 2026?

Considering TSMC's position in the market, its stock likely remains a buy.

Admittedly, one cannot completely dismiss the geopolitical concerns. Also, the rising valuation will make it difficult to match the stock returns of the previous year.

Nonetheless, TSMC's dominance in the foundry market and advanced chip manufacturing appears unrivaled, and demand for AI chips shows no signs of slowing. With so many tailwinds pushing the stock higher, investors are likely to outpace the market in 2026 simply by buying and holding TSMC stock.

Will Healy has positions in Advanced Micro Devices and Berkshire Hathaway. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Berkshire Hathaway, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.