This Ultimate AI Stock Has Gained 26% This Year and Still Isn’t Done

Nvidia (NASDAQ: NVDA) became the world’s most valuable company because it is a critical part of the AI build-out. Companies need Nvidia chips for computational power, but it turns out Nvidia needs another company to manufacture its chips.

Taiwan Semiconductor Manufacturing Co. (NYSE: TSM) creates the chips that Nvidia designs. It’s not just Nvidia, either. The Taiwan firm also manufactures the majority of AMD‘s (NASDAQ: AMD) and Broadcom‘s (NASDAQ: AVGO) chips.

That customer base puts Taiwan Semiconductor Manufacturing at the center of the AI boom. However, it’s been a valuable pick even before AI chips became the hottest tech. The firm’s long-term history and current opportunities suggest more upside.

Taiwan Semiconductor Manufacturing’s business model is simple to understand, especially in the context of the AI build-out. Hyperscalers like Amazon and Microsoft need AI chips like the ones that Nvidia, Broadcom, and AMD sell.

All that demand translates into more sales for the chipmakers, but those same chipmakers only design the chips. They need Taiwan Semiconductor Manufacturing to create them. When chipmakers report high revenue growth and vast backlogs, it means more business is going to Taiwan Semiconductor Manufacturing.

This selling point has explained why the Taiwan-based company has notched an 18.6% revenue compound annual growth rate (CAGR) since its listing in 1994. The company continued this hot streak by delivering 35.1% year-over-year revenue growth in Q1, and its 58.3% net income growth over the same stretch indicates rising profit margins.

Taiwan Semiconductor Manufacturing customers are still in growth mode. Nvidia anticipates $78 billion in Q1 FY27 revenue, which represents 14.5% sequential growth. Broadcom’s guidance suggests 13.9% sequential growth on the path to $22 billion in sales, and AMD said it is entering 2026 with “strong momentum across [its] businesses.”

Successful AI chipmakers translate into a flourishing Taiwan Semiconductor Manufacturing, which explains why the stock has outperformed the S&P 500 (SNPINDEX: ^GSPC) year to date. It was up 26% year to date as of market close April 23.

Taiwan Semiconductor Manufacturing has delivered long-term growth for its investors, with Q2 guidance calling for 10.3% sequential growth at the midpoint. This growth also comes with a pristine balance sheet that features $133 billion in total current assets, with $94.7 billion being cash and cash equivalents.

The firm has $53.5 billion in liabilities, resulting in an attractive 2.49 current ratio. This high current ratio means Taiwan Semiconductor Manufacturing can continue to pursue attractive growth opportunities without financial constraint. Its current growth is sustainable and scalable.

While some AI firms have to dilute investors and get deep into debt to maximize their opportunities, Taiwan Semiconductor Manufacturing has a balance sheet that’s built like a fortress. It acts as a valuable foundation that enables Taiwan Semiconductor to return higher profits and dividends to its shareholders.

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $498,522!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,276,807!*

Now, it’s worth noting Stock Advisor’s total average return is 983% — a market-crushing outperformance compared to 200% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.

See the 10 stocks »

*Stock Advisor returns as of April 25, 2026.

Marc Guberti has positions in Broadcom. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Broadcom, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

This Ultimate AI Stock Has Gained 26% This Year and Still Isn’t Done was originally published by The Motley Fool