Whereas shopping for and holding a single inventory in a portfolio shouldn’t be nice funding recommendation, it’s an attention-grabbing train to find out your highest-conviction inventory choose. The best inventory could be a comparatively secure firm that has a robust likelihood of beating the market over the long run. After looking via my private holdings, it is clear that one firm matches the invoice: Taiwan Semiconductor (NYSE: TSM).
Taiwan Semiconductor is the world’s main contract chip producer. It makes chips for firms that can’t produce them themselves, which is almost each firm. In consequence, Taiwan Semi is tied to almost each business and pattern. I feel this makes for a compelling funding case, and it will be my solely holding if I have been compelled to pick out a single inventory.
Picture supply: Getty Photos.
Amongst Taiwan Semiconductor’s purchasers are Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), AMD (NASDAQ: AMD), and Broadcom (NASDAQ: AVGO). Whereas Apple could also be on the forefront of client tech, the opposite three are in cost within the AI realm. This permits Taiwan Semiconductor buyers to learn from using extra chips and extra superior know-how. Buyers additionally do not have to choose a winner within the AI arms race, as there is a excessive likelihood that Taiwan Semiconductor chips will probably be utilized in no matter machine is powering the AI mannequin.
Taiwan Semiconductor has risen to the highest due to its tradition of steady enchancment and constant supply. TSMC is an organization that its prospects can depend on and has confirmed that a number of instances.
Most just lately, there was an enormous push to maneuver a few of TSMC’s manufacturing to the U.S. Though President Trump has definitely pressured TSMC to convey manufacturing into the U.S., former President Biden additionally championed the CHIPS Act, which helped Taiwan Semiconductor fund a few of its Arizona manufacturing factories. There was large demand for domestically produced chips, most notably from Apple and Nvidia, which each plan to make use of chips from the Arizona fabrication services.
Shifting extra manufacturing exterior of Taiwan limits the most important threat related to Taiwan Semi’s inventory: a mainland China takeover. Taiwan’s politics are messy, and the specter of a Chinese language invasion is at all times current. Ought to this happen, it will undoubtedly tank TSMC’s inventory. Nevertheless, contemplating how a lot of the world’s chips come from Taiwan, it will undoubtedly crash the remainder of the inventory market and doubtlessly put the U.S. at conflict. Whereas TSMC’s inventory will get smoked greater than others, that would not be an excellent state of affairs for proudly owning any shares, so I do not contemplate that as massive of a threat as others may.
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TSMC checks many packing containers for a reasonably secure funding, however how does its progress outlook form up?
At first of 2025, Taiwan Semi’s administration boldly predicted that AI-related income would develop at a forty five% compounded annual progress fee (CAGR) over the subsequent 5 years, with total income progress approaching a 20% CAGR. That is market-beating progress, and if TSMC can preserve its margin image, that can possible translate to such progress, so long as the inventory is priced proper.
In contrast to many different AI shares, TSMC is priced virtually on the similar stage because the broader market, buying and selling for 22.8 instances ahead earnings in comparison with the S&P 500 index’s (SNPINDEX: ^GSPC) 22.9.
TSM PE Ratio (Ahead) Chart
TSM PE Ratio (Ahead) information by YCharts
With Taiwan Semi anticipating market-crushing progress over the subsequent 5 years, mixed with a market-average a number of, it is shaping as much as be a inventory that might simply outperform the market over the subsequent few years. In consequence, I feel Taiwan Semi is a brilliant purchase now, as it’s going to have one of many best paths to outperforming the market over the subsequent 5 years. This path is why I feel Taiwan Semiconductor could be my solely inventory to purchase and maintain if I used to be restricted to only one.
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Keithen Drury has positions in Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot has positions in and recommends Superior Micro Units, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends Broadcom. The Motley Idiot has a disclosure coverage.
If I Might Solely Purchase and Maintain a Single Inventory, This Would Be It. was initially printed by The Motley Idiot