The Overlooked Infrastructure Play Quietly Winning the AI Boom

The PHLX Semiconductor Sector index has jumped by an impressive 68% this year despite the recent sell-off in this sector. These impressive gains have been fueled by the terrific demand for chips, which play a critical role in powering artificial intelligence (AI) infrastructure.

However, shares of Taiwan Semiconductor Manufacturing (NYSE: TSM) have underperformed the semiconductor sector in 2026, gaining just 33% as of this writing. This is even though TSMC is one of the most important companies in the AI infrastructure ecosystem. Its latest results provide further indication that it is winning big from the massive spending on AI data centers.

More importantly, TSMC is well-positioned to continue benefiting from the AI infrastructure boom. Let's look at the reasons why it seems like a bad idea to overlook this solid semiconductor stock.

Image source: TSMC.

TSMC's growth rate is picking up thanks to AI infrastructure spending

TSMC released its second-quarter 2026 earnings report on July 16. The company's revenue increased 34% year over year to $40.2 billion, while earnings per share jumped by an even more impressive 77% from the year-ago period to $4.31. The numbers exceeded analysts' expectations, and its guidance was the icing on the cake.

TSMC anticipates Q3 revenue of $45.2 billion, which points to a 37% jump from the year-ago period. Even better, the company sees its operating margin increase to 57% in the current quarter, up from 50.6% in the year-ago quarter. This points toward another major jump in TSMC's bottom line. Wall Street anticipates a 54% year-over-year increase in TSMC's earnings in the current quarter. However, the company's guidance suggests it could do better than that, primarily due to a significant increase in its margins.

Also, TSMC has increased its full-year guidance. It now expects 2026 revenue to increase by more than 40%, up from the earlier estimate of 30%-plus growth. TSMC attributes the stronger guidance to the growing demand for AI chips. Management noted on the latest earnings call that AI is driving "the need for more and more computation," with applications such as agentic AI driving a resurgence in central processing units (CPUs).

Looking ahead, AI infrastructure spending could jump from an estimated $1 trillion in 2027 to $3-$4 trillion in 2030, according to industry bellwether Nvidia. This indicates that TSMC's incredible growth will continue in the long run, given that it is the go-to manufacturer for chips for the leading AI chip designers, including Nvidia, AMD, Qualcomm, Broadcom, and others.

Not surprisingly, there has been a significant uptick in TSMC's earnings forecast following its quarterly report.

The stock can go on a terrific bull run

TSMC stock may have underperformed the broader market this year, but don't be surprised if it steps on the gas. We have already seen that the company is growing at an impressive pace, and it can sustain its momentum over the long run due to the secular growth of the AI infrastructure space.

What's more, investors can buy TSMC at 25 times forward earnings right now, which is in line with the Nasdaq-100 index's forward earnings multiple. If TSMC's earnings per share indeed reach $28.03 in 2028 and it trades at 25 times earnings at that time, its stock price could jump to $700. That's a potential gain of 67% in less than three years, which is why investors should consider buying this AI stock before it regains its mojo.

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