Got $1,000? This Pick-and-Shovel Growth Stock Could Be a Long-Term Winner

Investors have plenty of ways to play the artificial intelligence (AI) boom. Software, hardware, cloud computing, energy, and data center companies all offer growth potential. But one key player is often overlooked: the company that manufactures most of the chips powering data centers.

Taiwan Semiconductor Manufacturing (NYSE: TSM) delivered strong results in 2025, and management expects sustained demand for cutting-edge AI processors for years to come. With a dominant market share, a broad customer base, and high margins, it stands out as a top pick-and-shovel play on the AI infrastructure buildout. If you have $1,000 available to invest, you might want to put it toward this AI stock. Here's why.

Image source: Taiwan Semiconductor Manufacturing.

Why TSMC is built for growth

A large share of data center spending goes into chips, with the total spending for data centers expected to reach $1.7 trillion by 2030, according to Dell'Oro Group. That suggests an addressable market for chips in the hundreds of billions.

As the leader in chip manufacturing for leading tech companies, TSMC should benefit. The company has posted double-digit revenue growth, sending its stock soaring over the past few years.

The stock is down 5.7% from its high amid this year's broader tech sell-off, partly reflecting worries that AI spending could cool. The chip industry is also cyclical, which is always a risk. That showed up in late 2022, when demand softened, and the stock fell 58% from its high.

While investors should expect the industry to experience occasional ups and downs, management still sees tremendous long-term demand for advanced process technologies. TSMC works closely with customers who share their long-term plans, which is reflected in management's guidance. The company is calling for more than 50% annualized growth in AI chips through 2029.

One reason TSMC maintains such close relationships with customers is its massive scale. The company's annual production capacity now exceeds 17 million 12-inch-equivalent wafers, up from 16 million in 2023. That manufacturing muscle supports $122 billion in annual revenue, making TSMC one of the largest semiconductor companies by global revenue, according to The Motley Fool's research.

Why buy TSMC stock?

Despite its dominance, TSMC isn't the only chip foundry. It faces competition from Samsung, which has a deal to make chips for Tesla, and Intel, which has recently received U.S. government backing. Even so, TSMC's market share has been rising, reaching 72% in the second half of 2025, according to Counterpoint Research. It generates a stellar 45% profit margin, underscoring its customer relationships and scale advantage.

Other risks are a slowdown in data center spending, potentially driven by energy bottlenecks or regulatory limits. There's also the potential for longer-term geopolitical tensions between Taiwan and China, which would create uncertainty for TSMC's business.

Investors should weigh these risks, but the valuation looks compelling. Even with management projecting long-term growth in AI-related processing, the stock trades at a forward price-to-earnings multiple of 23. For investors looking to invest $1,000 in a competitively positioned AI chip supplier, TSMC remains one of the most compelling stocks to buy right now.

John Ballard has positions in Tesla. The Motley Fool has positions in and recommends Intel, Taiwan Semiconductor Manufacturing, and Tesla. The Motley Fool has a disclosure policy.