Prediction: This Will Be the Top-Performing Semiconductor Stock Over the Next 10 Years (Hint: It's Not Nvidia)

The launch of ChatGPT on Nov. 30, 2022 represented one of the leading catalysts that sparked the revolution around artificial intelligence (AI). Since that date, shares of semiconductor stock Nvidia have soared an astronomical 550%, transforming the company to a multitrillion-dollar enterprise in the process. While semiconductor chips should remain an integral component of AI development, investors want to identify new growth opportunities beyond Nvidia.

Taiwan Semiconductor Manufacturing (NYSE: TSM) is another company that looks well-positioned to dominate the AI chip arena over the next decade. Its growth prospects and valuation trends support the case for why Taiwan Semi is my top choice in the chip space right now.

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Taiwan Semi is the engine powering the chip boom

Chances are you're familiar with names like Nvidia, Advanced Micro Devices, and Broadcom when it comes to advanced chipsets and data center infrastructure used for building AI applications. What you may not be so familiar with, however, is the role Taiwan Semi plays in the background.

Nvidia, AMD, Broadcom, OpenAI, Amazon, Qualcomm, and many others rely on the fabrication processes of TSMC to help manufacture their chips and integrated systems products. In other words, Taiwan Semi brings the engineering prowess from AI's biggest players to life.

Image source: Getty Images.

TSMC's growth is just getting started

In 2024, TSMC generated $88.3 billion in sales and $6.81 in earnings per share. Per the consensus estimates below, Wall Street is expecting the company's top line to continue growing rapidly over the next couple of years while maintaining healthy profitability too.

Data by YCharts.

AI in the semiconductor market is expected reach a market size of $233 billion by 2034, according to Precedence Research. Considering that TSMC already holds over 60% of the foundry market, combined with its long roster of industry-leading chip designers as customers and the rise of custom silicon chipsets, Taiwan Semi is in a great position to achieve or even surpass the financial estimates illustrated above.

Monster growth at a bargain price point

As of this writing, Taiwan Semi trades at a price-to-earnings ratio (P/E) of 21. This is in line with its 10-year average multiple.

Data by YCharts.

But TSMC's valuation has compressed significantly over the last few months with the primary cause being the ongoing uncertainty around new tariff and trade policies from the U.S.

Although it's hard to predict when there will be any relief from ongoing trade negotiations, I tend to be in the camp that believes growth stocks are oversold right now. From a macro point of view, tariffs can change at any point, and the current policies aren't going to last forever. Investors are overstating the impact tariffs might have on TSMC's business in the short term while underestimating how bright the company's long-term opportunity is.

Unlike an investment in Nvidia, buying TSMC stock more or less serves as a long-run bet on overall chip demand and AI infrastructure spending. In other words, regardless of which company's chips or data center equipment are experiencing the most demand -- TSMC stands to benefit.

That puts the company in the middle of a budding, generational megatrend. Taiwan Semi's growth prospects are the best they've been in at least the last decade, and yet, the company's valuation is unchanged from its 10-year average and even represents a discount to the S&P 500 index.

Put it all together, and you have a clear case for why Taiwan Semi is the top chip stock to own for the next decade.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.