Keithen Drury, The Motley Fool

Mon, Jun 16, 2025, 2:45 AM5 min read

• Taiwan Semiconductor is in a neutral position for the AI arms race.

• Management has given a bold growth prediction for the next five years.

• The stock doesn't have a huge premium attached to it.

• 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

The long-term returns for the broader stock market are about 10% annually, which causes the market to double around once every seven years. So, if you can pinpoint stocks that can soar 150% over the next five years, you'll have a great chance of beating the market with some margin of safety built in.

One AI stock I've identified that can achieve that is Taiwan Semiconductor Manufacturing (NYSE: TSM). Taiwan Semiconductor is the leading chip fabricator worldwide and has nearly every big tech company as a client for its chips. Thanks to Taiwan Semiconductor's positioning, it can accurately project years into the future, which is where the 150% return level comes from.

If you want to add another stock to your portfolio or increase your current TSMC holding, now could be an excellent time before the market wakes up to Taiwan Semiconductor's substantial opportunity.

Taiwan Semiconductor, or TSMC, is a chip fabricator, and these orders are often placed years in advance due to high demand. For example, Taiwan Semiconductor's existing Arizona facility already sold out production through 2027, which means it likely has orders in its system for that facility through at least 2028. While there are some tariff concerns, semiconductors are exempt from reciprocal tariff levies as of this moment (although that could easily change). Furthermore, TSMC's CEO C.C. Wei stated in its first-quarter conference call that "we have not seen any change in our customers' behavior so far" when commenting on tariffs.

Taiwan Semiconductor is more than generous with information to investors, offering monthly revenue updates throughout the year. In April, its revenue (in New Taiwan Dollars) was up 48% year over year and 40% in May. These numbers can fluctuate from year to year depending on how many working days there are from year to year (there were 23 working days in May during 2024 while only 22 in 2025), but it's still useful to check in on TSMC to get an idea of any large demand shifts.

Clearly, Taiwan Semiconductor is doing great, but the 150% increase projection deals with the next five years, not the next five months. Management's long-term guidance given at the beginning of 2025 was for the company to grow AI-related revenue at a compounded annual growth rate (CAGR) of 45% for the next five years. That means AI-related revenue will rise 541% over the next five years. Overall revenue is expected to rise at nearly a 20% CAGR. If it achieves that level, then revenue will increase at a 149% pace.