Prediction: The Best Pick-and-Shovel AI Stock of 2026 Won't Be Nvidia or Broadcom

Nvidia and Broadcom have been at the forefront of the artificial intelligence (AI) semiconductor revolution thanks to their leading-edge chips that handle workloads such as model training and inference in the data centers of major hyperscalers and AI companies.

While Nvidia makes graphics processing units (GPUs) and server processors deployed in AI data centers, Broadcom's custom AI processors have become quite popular due to their performance and cost advantages in inference applications. Not surprisingly, both companies anticipate a significant increase in AI chip sales over the next couple of years.

Both Nvidia and Broadcom are pick-and-shovel AI companies that provide the critical infrastructure needed for the proliferation of this technology. However, their success in the AI chip market wouldn't have been possible without foundry giant Taiwan Semiconductor Manufacturing (NYSE: TSM).

Let's take a closer look at TSMC's role in Nvidia and Broadcom's remarkable growth and check why this Taiwan-based company could be the ultimate pick-and-shovel AI stock for 2026 and beyond.

Image source: TSMC.

TSMC has a wider reach in AI chips than Nvidia and Broadcom

Nvidia and Broadcom are fabless chipmakers, which means they only design AI chips. The manufacturing of their chips is outsourced to TSMC, whose leading-edge processes enable Nvidia and Broadcom to design advanced chips with high computing power and low power consumption. For instance, Nvidia's latest Vera Rubin AI chip systems are built on TSMC's 3-nanometer (nm) process node. Even Broadcom taps the same process node to make its custom AI processors and networking components.

But what's worth noting is that Nvidia and Broadcom aren't the only companies looking to get their hands on TSMC's most advanced chips. The A19 and A19 Pro chips powering Apple's latest iPhones sport 3nm chips fabricated by TSMC. Meanwhile, Nvidia rival Advanced Micro Devices is all set to launch its next-generation MI450 AI graphics cards manufactured on TSMC's even more advanced 2nm process node. Smartphone chip designers Qualcomm and MediaTek are also expected to launch 2nm chipsets manufactured by TSMC this year.

In simple terms, TSMC is the company that leading AI chip designers and consumer electronics companies go to for manufacturing their chips. So, when Nvidia points out that it is anticipating $1 trillion in AI data center chip sales in 2026 and 2027, or when Broadcom says that it sees $100 billion in AI chip revenue in fiscal 2027 (up from $20 billion in fiscal 2025), TSMC is going to be the ultimate beneficiary.

TSMC stands to gain from the growing AI chip demand that companies such as AMD and Marvell Technology anticipate, as they rely on the Taiwanese company's foundries for their manufacturing. So, it is easy to see why TSMC is the ultimate pick-and-shovel play in the AI space. The good news for investors is that TSMC's diversified customer base is translating into remarkable growth.

The latest results suggest that TSMC could exceed expectations in 2026

TSMC released its first-quarter results on April 16. Its revenue shot up by nearly 41% year over year to $35.9 billion, while earnings jumped by nearly 65% to $3.49 per share. The stronger increase in the company's bottom line was driven by 7.4 percentage-point rise in net profit margin to 50.5%.

The robust jump in its margins wasn't surprising, as TSMC enjoys strong pricing power owing to its dominant 72% share in the foundry market. TSMC anticipates its operating profit margin to be 57.5% in Q2 (at the midpoint of its guidance range). That points to a big jump over the prior-year period's operating margin of 49.6%.

As TSMC forecasts a 32% year-over-year increase in revenue in the current quarter to $39.6 billion, its earnings will jump substantially once again. So, it won't be surprising to see TSMC's 2026 earnings growth exceed the 40% jump analysts are expecting, especially given its forecast for revenue to increase by more than 30%. Earlier, it was expecting "close to 30%" revenue growth in 2026.

Given that TSMC is expected to continue raising prices for its advanced chip nodes over the next four years, there is a solid chance it will sustain high earnings growth over the long run. So, investors looking to buy the best-of-breed AI semiconductor stock should consider buying TSMC.

Its forward earnings multiple of 25 isn't all that expensive compared to the tech-focused Nasdaq-100 index's forward earnings multiple of 24, and there is a chance TSMC stock could trade at a more premium valuation due to its high earnings growth rate.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Broadcom, Marvell Technology, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing and is short shares of Apple. The Motley Fool has a disclosure policy.