1 Green Flag for Taiwan Semiconductor Manufacturing Company Right Now

Key Points

• Taiwan Semiconductor Manufacturing is one of the most critical companies in the AI pipeline.

• Data centers wouldn't be as efficient if TSMC didn't make the chips that most of them run on.

• AI infrastructure spending is expected to increase $3 trillion to $4 trillion over the next five years.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

Taiwan Semiconductor Manufacturing (NYSE: TSM) -- also known as TSMC -- may not be a household name, but I'm willing to bet my last dollar that the semiconductors (chips) that it makes are in virtually every household in the U.S.

The reason I'm so confident is that TSMC manufactures many of the chips that are in the smartphones, computers, gaming consoles, and TVs that people use daily. It's the unsung hero of the tech world, if you will.

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TSMC's business has long been a staple in the tech world, but its importance is increasing because of how essential it is to the artificial intelligence (AI) ecosystem. After estimates from Nvidia's recent earnings report, the business just received another green flag that should excite investors.

Image source: Getty Images.

Nvidia is relevant to this because it dominates the graphics processing units (GPUs) that power data centers, the backbone of the AI pipeline. However, Nvidia wouldn't be able to produce these GPUs without TSMC manufacturing them. Taiwan Semiconductor is indispensable; without it, the entire AI supply chain suffers greatly because no other company comes close to its manufacturing ability and scale.

The more companies spend on AI-related infrastructure, the more business comes TSMC's way, because almost every major chip designer relies on it. In its recent earnings call, Nvidia noted that it expects significant AI spenders to invest between $3 trillion and $4 trillion in AI infrastructure over the next five years.

As these companies invest in building out their AI infrastructure, a significant portion of this money will trickle down to TSMC due to the extensive reliance of the entire AI industry on it, even if indirectly. We should expect Taiwan Semiconductor's revenue growth (up 44.4% to $30.07 billion in the second quarter) to continue its momentum.

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Stefon Walters has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.