Is Taiwan Semiconductor the Smartest Investment You Can Make Today?

Dig into the stock market these days, and one could easily be overwhelmed by the investment options. The New York Stock Exchange includes 2,200 companies, and there are another 3,450 stocks listed on the Nasdaq exchange. Let's add to that number the stocks on the over-the-counter markets, where you have nearly 6,500 more names from which to choose. And then there are exchange-traded funds (ETFs), which include baskets of stocks. There are more than 14,000 ETFs available globally.

So, with all those choices in front of you, how is it possible to choose the smartest single investment to make in 2026?

One method is to narrow down the investing themes. Artificial intelligence (AI) has been a huge driver in recent quarters, with many of the top tech companies seizing the opportunity to build products and bring enormous wealth to their shareholders. Stocks in the grouping known as the Magnificent Seven, which comprise the largest tech stocks in the S&P 500, are leading names in the AI race and have grown to valuations exceeding $1 trillion each. In fact, these seven companies now make up 34% of the S&P 500's valuation, achieving a return of nearly 700% from 2015 to 2024.

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It would be a smart play to invest in one or more of these Magnificent Seven stocks. But considering that these companies are often competing with each other for supremacy, the smartest play lies outside this grouping with a company that stands to benefit from the AI build-out regardless of which Magnificent Seven stock emerges in a dominant position.

Here's why I think Taiwan Semiconductor Manufacturing (NYSE: TSM), better known as TSMC, is the smartest investment you can make today.

TSMC is the safe AI play

AI is an enormous field that's getting bigger, seemingly by the day. Grand View Research estimates that the AI market was worth $390.91 billion in 2025 and will be worth nearly $3.5 trillion by 2033, which represents a compound annual growth rate of 30.6%. Nvidia CEO Jensen Huang has been even more bullish, estimating that AI infrastructure alone could be worth $4 trillion by 2030.

At the intersection of all this growth is TSMC, which is the world's largest foundry for semiconductor chips. The company produced more than 11,800 separate products in 2024, using nearly 300 different process technologies. And most importantly, some of the biggest AI companies in the world use TSMC's foundries, including Apple, Qualcomm, Advanced Micro Devices, Broadcom, Nvidia, Intel, and Amazon.

As Nvidia's Huang says, "They are a world-class foundry and support customers of diverse needs. You can't overstate the magic that is TSMC."

TSMC is in high demand due to its expertise in manufacturing 3nm and 5nm chips. Chips that are 3nm have smaller transistors than 5nm chips, and provide better performance and power efficiency. As recently as 2023, TSMC was getting more than half of its revenue from chips larger than 7nm, but its rapid advancement in fabrication technology is changing the game. In the third quarter of 2025, TSMC got 23% of its revenue from 3nm chips and 37% of its revenue from 5nm chips, according to Motley Fool research.

The stock performance stands out

TSMC doesn't receive the same publicity as Nvidia or the members of the Magnificent Seven, but the company's financial statements show how strong it is. Revenue in Q3 was $33.10 billion, up 40.8% from a year ago. The company had a net income of $15.1 billion, with a net profit margin of 45.7% and earnings per share of $0.58, up 39% from a year ago.

It also issued guidance for Q4 for revenue between $32.2 billion and $33.4 billion, which at the midpoint would be a 22% increase from a year ago.

The stock was up 53% in 2025, and analysts at Yahoo! Finance have bullish ratings, as 15 of 17 analysts surveyed have "buy" ratings and two others recommend holding the stock. No analyst is recommending selling TSMC stock.

TSMC is the closest thing you can get to a diversified investment in semiconductors with a single stock. Nvidia is the go-to company for data center chips right now, but regardless of whether Nvidia continues to hold that crown or another company begins stealing market share, TSMC appears to be in the catbird's seat. It may be the smartest investment you can make today.

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