1 Unstoppable Chip Company That Could Soar to a $1 Trillion Valuation

Keithen Drury, The Motley Fool

Thu, Apr 10, 2025, 4:45 AM 4 min read

Although the market is in a downturn right now, I've still got my eyes on the horizon. Depending on the effects of tariffs, we could be in for some more stock market pain over the next few months, but if that timeline is stretched out to three or five years, today's stock prices start to make a lot more sense.

One chip stock that I'm excited about is Taiwan Semiconductor Manufacturing Company (NYSE: TSM) -- or TSMC. I think it could easily become a trillion-dollar company in a relatively short time frame. Its stock has gotten whacked alongside the market and is now down around 35% from its all-time high.

If you've got a long-term mindset, I think today's price looks incredibly attractive, as the stock appears to be dirt cheap.

TSMC is the world's largest contract chip manufacturer and produces chips for nearly all of the big tech companies. None of its clients (like Apple or Nvidia) can make their own chips, so they design them and then outsource the production to TSMC. This is a great position to be in, as TSMC doesn't need to worry about marketing its capabilities or products to clients.

It's already established as the top chip manufacturer in the world, so it just needs to focus on innovating. TSMC is also a leader in chip technology, with industry-leading 3-nanometer (nm) chip production capabilities. But it isn't stopping there, as 2nm and 1.6nm chip nodes are set to launch this year and next.

However, all of this is for nothing if President Donald Trump's tariffs harm TSMC. President Trump imposed a 32% tariff on Taiwan, which would obviously cause the prices of chips to skyrocket. However, semiconductors are exempt from this tariff, so TSMC is in the clear for now. The biggest challenge TSMC faces with its chips is overall demand.

Leading into 2025, there was a massive and growing demand for chips in all facets of TSMC's business. Management gave guidance that AI-related revenue will expand at a 45% compound annual growth rate (CAGR) over the next five years, and overall revenue would rise at nearly a 20% CAGR overall. Now that tariffs are in effect, we have no idea if this guidance has changed, but we'll hear more from TSMC during its Q1 conference call on April 17.

The biggest concern is that weaker consumers will have less spending power, which could cause them not to upgrade their smartphones or purchase fewer items overall. This would decrease the cash flows of many of the AI hyperscalers that would use that money to buy AI computing hardware. Demand for chips would drop, and TSMC would be harmed.