The artificial intelligence (AI) megatrend has captured the imagination of Wall Street since the launch of ChatGPT in late 2022. The disruptive technology is expected to bridge the gap between the computational power of machines and the natural abilities of humans. Today, AI is used in several verticals, such as language processing and data reasoning. Moreover, the AI market is forecast to grow at an enticing pace over the next decade making several stocks top investment choices in January 2025.
Big Tech giants have already integrated AI to enhance existing services. For example, Alphabet (Google) uses AI to filter out spam mail, while Amazon and Netflix use it for product recommendations and content suggestions, respectively.
The emergence of platforms such as ChatGPT, Claude, and Perplexity shows the rapid evolution of AI tools. Today, these platforms can generate creative content and solve complex problems.
Given these factors, here is one AI stock where you can invest $1,000 in right now.
The bull case for TSMC stock
Valued at a market cap of US$885 billion, Taiwan Semiconductor (NYSE:TSM) is the world’s largest contract chip manufacturer. It manufactures advanced semiconductors for major tech companies, including Apple and Nvidia.
TSMC produces integrated circuits and semiconductors using sophisticated fabrication processes focused on logic, mixed-signal, and memory chips. These products power everything from smartphones and AI systems to automotive electronics and IoT devices. Founded in 1987, TSMC has become crucial to AI chip production, which has driven share prices higher in recent years.
In the last 12 months, TSMC stock has returned 85% to shareholders. After adjusting for dividend reinvestments, the chip maker has returned more than 1,000% since January 2015.
Despite its massive size, Taiwan Semiconductor continues to grow steadily. In the fourth quarter of 2024, sales grew by 38.8% year over year to US$26.36 billion, while net income growth was even higher at 57%.
TSMC stated that AI-related chips were the key growth driver, with high-performance computing accounting for 53% of sales. Further, strong orders tied to Apple’s iPhone lineup also boosted performance.
Is the AI stock overvalued?
Despite strong growth prospects in AI, TSMC faces potential challenges from U.S.-China trade tensions and Donald Trump’s upcoming policies. Alternatively, TSMC remains confident about its U.S. operations and federal funding. It has already received US$1.5 billion (out of the US$6.6 billion promised under the CHIPS Act) for its Arizona projects.
TSMC’s first Arizona plant began production in late 2024, and the company is expected to spend US$65 billion across three plants in the Grand Canyon state.
While Trump has criticized the CHIPS Act and accused Taiwan of “stealing” U.S. chip business, experts believe the program will continue due to bipartisan support. TSMC CFO Wendell Huang expects funding to continue as construction and production milestones are met.
Analysts expect Taiwan Semiconductor to increase sales from US$88.47 billion in 2024 to US$133.6 billion in 2026. Its adjusted earnings are forecast to expand from US$7.04 per share in 2024 to US$10.91 in 2026. So, priced at 19.4 times forward earnings, TSMC stock trades at a reasonable valuation given its growth estimates.
