Artificial intelligence (AI) investing has been center stage since 2023, but these stocks have taken a bit of a breather over the past month as the market cools off. However, I don't expect this to persist throughout 2025, and I wouldn't be surprised if these stocks start to move higher following strong first-quarter results.
Of all the potential AI stock picks out there, there's one that I have ultimate confidence in: Taiwan Semiconductor Manufacturing (TSM 0.47%). It gives investors a little more than quarterly results; it reports revenue every month. Of the figures we have in 2025, business is still going strong, and investors should position themselves to take advantage of what I think will be a strong run to finish off 2025.
Taiwan Semiconductor's positioning makes it an ideal investment
Taiwan Semiconductor (also known as TSMC) is my best AI stock because of its position in the industry. Multiple competitors are vying to be the top provider of computing power for AI hyperscalers. However, none of these companies have the chip production capabilities. Instead, they farm that work out to a semiconductor foundry like Taiwan Semiconductor. This makes TSMC a neutral party in the AI race. It doesn't necessarily need to be the winner, because the winner will most likely purchase chips from TSMC (as will the losers).
This positioning also gives management unparalleled vision into the company's future, as many of its clients place chip orders years in advance. Over the next five years, management sees AI-related chips delivering a compound annual growth rate of 45%. Companywide, they expect this growth rate to approach 20%. That's huge growth over the next five years, and I want to partly own that growth as a shareholder.
NYSE: TSM
Key Data Points
Pundits might point out that because TSMC is not based in the U.S., it could be a target of President Donald Trump's tariffs. However, Taiwan seems to have sidestepped this threat by announcing $100 billion in further chip production capabilities in the U.S. Taiwan's President and TSMC's CEO have both denied that President Trump forced them into this expansion, as TSMC has already sold out U.S. chip production capabilities through 2027. Regardless, President Trump got what he wanted: TSMC moved some of its production within the U.S. This has allowed Taiwan to sidestep the tariff threat, for now.
Even with all the concerns that the U.S. economy may be slowing, TSMC is still growing rapidly. Taiwan Semi's management provides investors with monthly revenue updates, and 2025 has been very strong so far. In January, revenue rose 36% year over year, and that growth accelerated to 43% in February. Clearly, it's full speed ahead for Taiwan Semi, yet the stock is priced at a dirt cheap level.
The stock looks cheap compared to the broader market
Chip stocks have historically traded at a discount to their tech peers because of the cyclical nature of their business. However, we're undergoing the largest computing power boom that we've ever experienced, and it may be some time before we see a downturn in the chip market. Taiwan Semi's stock still reflects some of that original pessimism, as it trades for a lowly 20 times forward earnings.
TSM PE Ratio (Forward) data by YCharts.
Considering that the S&P 500 trades for 21 times forward earnings, it's safe to say that TSMC is a pretty cheap stock. Despite its discount, it's putting up above-average growth.
Taiwan Semi's neutral position in the AI race and its cheap stock price make it a no-brainer buy. It also knows how to play ball with the current presidential administration, alleviating some of the concerns that it is based overseas. Few stocks make me as confident as Taiwan Semiconductor, which is why it's my top AI stock to buy now.
