TSMC: Chipmaker Set to Triple AI Revenue in 3 Years

Published Date : 08/07/2025 

As the demand for AI chips continues to surge, TSMC is well-positioned to more than triple its AI revenue by 2027. This article explores the factors driving this growth and why TSMC is a compelling investment for AI enthusiasts. 

The competition in the AI chip market is heating up, but one chipmaker stands out as a leader poised for significant growth. Taiwan Semiconductor Manufacturing Company (TSMC) is on track to more than triple its AI-related revenue in the next three years, making it a key player in the ongoing AI revolution.

Just about every big tech company in the world is in a race to build more computing capacity to meet the demands of large language model training and AI inference. The four biggest spenders alone are set to invest over $320 billion in capital expenditures this year, with a significant portion allocated to data centers.

Nvidia, a leading chipmaker, has seen its data center revenue climb more than 10-fold in three years, thanks to its GPUs being in high demand. However, competition is starting to catch up. Advanced Micro Devices (AMD) is a strong contender, with its MI400 chips set to challenge Nvidia's dominance. These chips offer a 'rack-scale' system that can function like a single compute engine, providing better price performance for large data centers.

Other tech giants like Meta, Microsoft, Alphabet's Google, and Amazon are also developing custom silicon designs to reduce their reliance on third-party chips. These application-specific integrated circuits (ASICs) are tailored for specific AI tasks and can offer better price performance. While these custom solutions may not be as flexible as GPUs, they are proving to be highly effective for AI training and inference.

Despite the competition, TSMC remains a critical player in the AI chip market. When Nvidia, AMD, and other chipmakers need their designs printed on silicon wafers, they turn to TSMC. TSMC's dominant position in semiconductor fabrication is due to its scale and advanced technology. The company's leading-edge technology wins it the biggest contracts, which it uses to build out scale and reinvest in R&D to maintain its technology lead.

In a market with booming demand, TSMC can produce considerable returns on its capital spending. Management expects AI-related revenue to more than triple from 2025 through 2027. They are on track to double AI-related revenue from 2024 this year alone, bringing it to around $26 billion. To triple, TSMC would only need to grow at about 20% per year for 2026 and 2027.

A key aspect of this growth will be the introduction of TSMC's 2nm and 1.6nm processes. The company is set to release both manufacturing nodes in quick succession, with the 2nm arriving later this year and the next generation in late 2026. TSMC is reportedly charging $30,000 per wafer for 2nm chips, compared to about $20,000 for 3nm chips. TSMC already has 2nm contracts lined up for AMD, Microsoft, Amazon, Google, and others.

While AI-related revenue remains a small portion of TSMC's total revenue, it is expected to climb to about 30% of total revenue by the end of the decade based on management's long-term forecast. The company expects about 20% total revenue growth over the next five years, and it should be able to produce strong margins as it ramps up 2nm and 1.6nm production. Overall, earnings growth should keep pace with revenue growth, bolstered by strong demand for AI chips.

Meanwhile, TSMC's stock trades at a forward PE ratio of less than 25, making it an incredible value compared to other AI stocks like Nvidia or AMD, which trade around 35 times earnings. With the strong position TSMC is in right now, it's worth adding to your portfolio. 

Frequently Asked Questions (FAQS): 

Q: What is TSMC's role in the AI chip market?

A: TSMC (Taiwan Semiconductor Manufacturing Company) is a leading semiconductor manufacturer that produces chips for various tech companies, including Nvidia and AMD. It is crucial in the AI chip market due to its advanced technology and scale.

Q: How is TSMC expected to grow its AI-related revenue?

A: TSMC is expected to more than triple its AI-related revenue from 2025 to 2027. The company is on track to double this revenue in 2024 and expects 40% average annual growth over the five-year period from 2025 to 2029.

Q: What are the key advantages of TSMC in the semiconductor market?

A: TSMC's key advantages include its scale and advanced technology. These factors allow it to win large contracts and reinvest in R&D to maintain its technology lead.

Q: How do custom silicon designs from tech giants like Meta and Google impact the AI chip market?

A: Custom silicon designs from tech giants like Meta, Google, and Amazon are tailored for specific AI tasks and can offer better price performance. While they may not be as flexible as GPUs, they are proving effective for AI training and inference.

Q: What is the current valuation of TSMC compared to other AI stocks?

A: TSMC's stock trades at a forward PE ratio of less than 25, making it an attractive value compared to other AI stocks like Nvidia or AMD, which trade around 35 times earnings. 

More Related Topics :