Taiwan Semi or Broadcom: If I Could Only Own 1 for the Next 5 Years, It Would Be This

If you own stock in Broadcom (NASDAQ: AVGO) and Taiwan Semiconductor Manufacturing (NYSE: TSM), you have to be pretty happy about your returns over the last three years. Broadcom stock is up nearly 300% over the last three years, and Taiwan Semiconductor has done even better, gaining 370%.

Both play critical roles in the build-out of artificial intelligence (AI), but their businesses are very different. Broadcom designs custom AI accelerators and networking chips that help technology companies build powerful AI systems. Taiwan Semiconductor, better known as TSMC, manufactures the advanced chips that companies like Broadcom design.

And that distinction is why, if I could own only one of these semiconductor stocks for the next five years, I'd choose TSMC stock.

Image source: The Motley Fool.

Broadcom has a compelling growth story

There's plenty to like about Broadcom. The company has become a major player in AI infrastructure, supplying custom accelerators and networking technology to some of the world's largest technology companies.

Broadcom makes custom chips, called application-specific integrated circuits (ASICs). Rather than relying entirely on general-purpose graphics processing units (GPUs) from Nvidia, hyperscalers can work with Broadcom to develop processors designed for their specific AI workloads.

That can deliver better performance and efficiency for certain applications. And as companies spend billions building AI infrastructure, even modest efficiency improvements can translate into substantial savings. And Broadcom has revenue streams beyond AI, including semiconductor products and infrastructure software.

But there's a catch. Broadcom's custom AI chip business depends on customers continuing to invest in their own processors, and it faces competition from Nvidia and other chip designers. Its growth opportunities are substantial, but so are the expectations surrounding its AI business.

TSMC offers a different way to invest in that same demand. Let's see how.

TSMC makes the chips everyone needs

One of TSMC's most attractive features is that it doesn't need to predict which chip designer will emerge as the biggest winner in AI. That's because TSMC manufactures chips for Nvidia, Advanced Micro Devices, Apple, and Broadcom, among others. These companies compete in different semiconductor markets, but they all depend on TSMC's manufacturing capabilities.

And TSMC has an extraordinary competitive advantage. Manufacturing advanced semiconductors requires enormous capital investments, sophisticated equipment, and years of experience perfecting production processes. Developing a chip design is difficult enough. Manufacturing millions of those chips with consistently high yields is an entirely different challenge.

TSMC has spent decades building that expertise, and its dominance in the pure-play foundry market demonstrates just how difficult it is for competitors to catch up. TSMC produced more than 12,600 different products in 2025 and used more than 300 separate process technologies.

The company's manufacturing leadership is particularly valuable as chip designers move toward smaller, more advanced process technologies. TSMC's ability to manufacture leading-edge chips at scale makes it an essential partner for companies pursuing faster and more power-efficient processors.

Broadcom may win new customers for custom AI chips. Nvidia may maintain its dominance in AI accelerators. AMD could gain market share. TSMC stands to benefit from all three outcomes.

Why I'd choose TSMC for the next five years

TSMC isn't without risks. The company needs to spend enormous amounts of money to expand capacity and develop new manufacturing technologies. And while its international expansion, including its massive investments in Arizona, should help it diversify production geographically, those facilities come with higher costs.

Still, I believe TSMC has the more attractive long-term business position. Broadcom's success depends partly on its ability to win custom chip designs and maintain relationships with major customers. TSMC, meanwhile, benefits from demand across a much broader group of semiconductor designers.

That doesn't make TSMC immune to an AI spending slowdown. Lower demand for advanced chips would affect both companies. And a great business isn't automatically a great stock at any valuation. But over a five-year holding period, I'd prefer to own the company that manufactures the chips rather than bet on which designer will capture the most business.

Broadcom is an outstanding semiconductor company with considerable growth potential. Yet even if Broadcom becomes one of AI's biggest winners, it will still need someone to manufacture its advanced chips. And there's a very good chance that someone will be TSMC.

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