Top AI Stock to Consider While It’s Down 27%—And It’s Not Nvidia

Current State of AI Stocks in 2025

2025 has been challenging for AI stock markets. Factors such as ongoing trade tensions, elevated valuations in the tech sector, and indications of declining demand have put pressure on these rapidly growing stocks. Currently, many AI stocks are facing year-to-date declines, reflecting broader market trends.

As of April 25, the Nasdaq Composite index had dropped by 11% since the beginning of the year, indicating a bear market based on some definitions. Yet, astute investors often see these downturns as opportunities to buy, and one standout option today is Taiwan Semiconductor Manufacturing Company (TSMC), whose stock is down 27% from its peak earlier this year.

Overview of TSMC

Taiwan Semiconductor Manufacturing Company, often referred to as TSMC, is recognized as the largest contract semiconductor manufacturer globally. TSMC handles over 50% of the worldwide contract chip production and an impressive 90% of advanced chip production.

As a key player, TSMC collaborates with major technology firms, including Apple, Nvidia, Broadcom, Advanced Micro Devices (AMD), and Qualcomm. This positions TSMC as a cornerstone of the global tech supply chain and a vital contributor to the development of artificial intelligence technologies.

TSMC’s Recent Performance

TSMC has reported robust growth during the AI surge, benefiting from advantages such as manufacturing capacity, expert knowledge, innovative technology, and strong customer relationships.

In its recent first-quarter earnings report, TSMC announced that its revenue soared by 41.6% to reach $25.5 billion. This growth occurred despite challenges such as the impact of a natural disaster in January. The company’s operating income reached $12.4 billion, yielding an operating margin of 48.5%.

Management acknowledged a seasonal dip in smartphone demand but highlighted ongoing growth in AI-related sales, especially for their advanced 3nm and 5nm chips. Remarkably, tariff policies have not hindered customer behavior thus far.

It’s noteworthy that 73% of TSMC’s revenue in the first quarter came from advanced chips (7nm or less), while 59% stemmed from high-performance computing, tying in with AI applications that partners like Nvidia seek out.

Growth Strategy of TSMC

The booming demand for AI technology signifies substantial growth potential for TSMC. The increasing integration of semiconductors into diverse products suggests that demand for chips will likely expand over the long term.

Due to both the rising need for semiconductors and geopolitical concerns regarding Taiwan, TSMC is actively investing in new manufacturing facilities worldwide, particularly in the U.S., where the company is viewed as a desirable partner for chip production.

TSMC stands to benefit from the CHIPS Act, which promotes domestic chip manufacturing in the U.S. The company recently committed to an investment of $100 billion in U.S. semiconductor production over the next several years.

By diversifying its manufacturing locations and enhancing its production capacity, TSMC aims to strengthen its competitive edge in the market.

Why TSMC is a Strong Investment

As a leading technology company, TSMC showcases considerable growth prospects and maintains sustainable competitive advantages. Despite its size and influence, TSMC’s stock currently trades at a relatively low price-to-earnings ratio of 21, which is below the average for the S&P 500.

This valuation may reflect investor anxieties regarding geopolitical issues in Taiwan. Nevertheless, both the U.S. and China have significant incentives to avoid military conflict, and historical trends during trade disputes reveal no major developments toward aggression.

It is important to note that the semiconductor industry is cyclical, making it susceptible to the impacts of ongoing trade tensions or a potential global recession. However, current risks appear to be factored into TSMC’s valuation.

With its growth potential, solid competitive advantages, and appealing valuation, TSMC presents a noteworthy investment opportunity for those looking to capitalize on the future of technology.