Got $1,000? Taiwan Semiconductor Manufacturing's $100 Billion Arizona Investment Makes It a Must-Own Stock

Taiwan Semiconductor Manufacturing (NYSE: TSM) has been making huge investments to diversify its production base away from its home island of Taiwan. During its Q2 announcements, Taiwan declared it would invest another $100 billion in its Arizona production facilities, bringing its total to $265 billion. That's a huge move by TSMC, and I think it solidifies the stock as a buy.

If you've got $1,000 sitting around, I can think of few better stocks to pick right now than Taiwan Semiconductor.

Image source: Taiwan Semiconductor Manufacturing Company.

Domestic chip production reduces the risk of disruption

One of the biggest fears investors have historically had with Taiwan Semiconductor is its location just off mainland China. The relationship between Taiwan and China is complex, and rumors of military activity have swirled for decades. Any military action would sink TSMC's stock, as production would be disrupted.

However, that military action also may plunge the world into a war, which would wreck all forms of investing (outside of defense and staples stocks). But with TSMC moving more and more production to the U.S., the risk of a single point of failure is decreasing. Obviously, TSMC's stock would likely plummet, but the business wouldn't be as disrupted as it once was.

Another task the Arizona investment accomplishes is increasing domestic chip production in general. Intel used to be the primary chip foundry business in the U.S. It has lost a lot of clients to TSMC due to its superior technologies and production capabilities. With a push to increase domestic chip production, TSMC either needed to onshore some of its capabilities or deal with Intel being boosted by the U.S. government, making it hard to compete with.

Lastly, Taiwan Semiconductor wouldn't be making these investments if there weren't a demand for increased chip production. During TSMC's Q2 conference call, CEO C.C. Wei stated he believes that AI chip demand will stay strong through at least 2029 to 2030, and that it could last longer due to a new industry being created. If there's enough demand to warrant a $100 billion investment for production facilities, I think investors can stay bullish on the AI trend in general.

With Taiwan Semiconductor being a chip fabricator and benefiting from increased AI spending in general, it's a neutral party that's primed to thrive over the next few years.

TSM PE Ratio (Forward) data by YCharts

At 23.5 times forward earnings, it's also a reasonably priced stock that looks primed to head higher as AI demand reaches new levels.

Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Intel and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.