This Is the Part of the AI Boom Nobody Is Talking About -- and the Stock Sitting at the Center of It

After artificial intelligence applications took the world by storm and the focus shifted to building the most advanced AI models, attention has turned to another part of the AI pipeline: infrastructure. Big tech stocks have committed hundreds of billions just this year to build out data centers and other important AI infrastructure.

With this, new attention has turned to the hardware (and hardware companies) that make the products populating these data centers and enable them to run at scale and efficiently. Whether it's Nvidia's GPUs, Broadcom's networking equipment, or Intel's accelerators, the one part of the AI boom that's sliding under the radar is who ultimately manufactures this hardware.

Will AI create the world's first trillionaire? Our team just released a report on a little-known company, called an "Indispensable Monopoly," providing the critical technology Nvidia and Intel both need. Continue »

Taiwan Semiconductor Manufacturing (NYSE: TSM) -- also known as TSMC -- is the world's largest semiconductor (chip) foundry, operating on a model in which it focuses solely on manufacturing chips for other companies rather than designing its own.

This model has proved lucrative because it lets companies design without the burden of operating a foundry, while also allowing TSMC to focus solely on perfecting its technological performance. While making chips for smartphones has historically been TSMC's most lucrative business, the new AI boom has flipped the script.

TSMC is the go-to manufacturer for advanced AI chips, and its high-performance computing (HPC) segment -- which includes these chips -- now accounts for 61% of its revenue. TSMC's manufacturing ability is well beyond that of any of its competitors, which is why it has a virtual monopoly on advanced AI chips.

Companies know TSMC is the most reliable at scale, and TSMC knows this and uses its pricing power to its advantage. In just the past three years, its revenue has increased by 129%, and in the past year, its operating margin has jumped from 48.5% to 58.1%.

Just recently, four of the AI hyperscales -- Amazon, Alphabet, Microsoft, and Meta Platforms -- reported their quarterly earnings and provided updates on their capital expenditure (capex) plans for the year:

Combined, that's between $680 billion and $710 billion this year, though not all of it will go to TSMC. Chip designers will get a piece, electricity companies will get a piece, and other industrial companies will get a piece. But a decent amount of it will be trickling down to TSMC. It's only a matter of time before TSMC is bringing in $200 billion annually (its total revenue was $122.4 billion in 2025).

Big-tech capex aside, an underrated catalyst for TSMC is how people are beginning to use AI differently. It's going from generative AI (like ChatGPT) to agentic AI (like Anthropic's Claude). Agentic AI is more command- and action-oriented, so instead of asking general questions, people are using it to execute complex workflows and take on more autonomous tasks.

As TSMC noted on its most recent earnings call, agentic AI uses more tokens (processing units) than generative AI, requiring much more computing power. The increased demand for computing power means an increased demand for TSMC's advanced AI chips. According to the company, "AI-related demand continues to be extremely robust." To help meet growing demand, TSMC has increased its capex to between $52 billion and $56 billion this year.

Taiwan Semiconductor has one of the widest competitive moats in the tech industry. A company can't replicate TSMC's technological leadership without spending tens of billions of dollars and years of lead time, which frankly nobody has.

The current AI boom has been (and should continue to be) an incredible boost for its business, but it's built to thrive regardless of AI's direction. Many of the electronics people use daily rely on TSMC, and will continue to for the foreseeable future.

It's a stock I personally own and plan to hold onto for quite some time.

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 $473,985!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,204,650!*

Now, it’s worth noting Stock Advisor’s total average return is 950% — a market-crushing outperformance compared to 203% 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.

*Stock Advisor returns as of May 6, 2026.

Stefon Walters has positions in Microsoft and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Intel, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

This Is the Part of the AI Boom Nobody Is Talking About -- and the Stock Sitting at the Center of It was originally published by The Motley Fool