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Artificial intelligence (AI) stocks had another strong year in 2025, and many are off to strong starts in 2026. Semiconductor stocks have been particularly strong, with people like Nvidia (NASDAQ: NVDA) i Broadcom (NASDAQ: AVGO) push the group higher.
But one semiconductor stock that outperformed both of these giants is Taiwan Semiconductor Manufacturing (NYSE: TSM). TSMC, as it’s also known, has seen its stock price rise 72% since the start of 2025, as of this writing, and is riding even higher on stellar fourth-quarter earnings results in January. And management’s expected outlook for 2026 and beyond makes the stock look even more attractive today than it did a year ago.
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TSMC is the world’s largest contract semiconductor manufacturer by a wide margin. That margin widened by 2025, with TSMC reaching 72% market share, as chipmakers like Nvidia and Broadcom spent whatever it took to access its advanced manufacturing capabilities. Nvidia CEO Jensen Huang said TSMC is the world’s best semiconductor manufacturer “by an incredible margin.”
Indeed, TSMC’s technology lead will be hard to come by. Only two other manufacturers come close, and TSMC benefits from a virtuous cycle. Its technology attracts big customers like Nvidia and Broadcom, giving it the ability to invest in additional capacity and research and development. In turn, it attracts larger contracts and has the ability to fulfill them, bringing in even more revenue.
Growing demand for AI chips, which use its most advanced manufacturing processes, has allowed it to increase its spending while raising prices. It instituted a price hike in a group of chips that accounted for roughly three-quarters of its revenue earlier this year. It is planning annual price hikes for these chips through 2029. Meanwhile, it is pricing its next-generation process at a higher price amid strong demand.
Management is spending heavily to meet this demand. Capital expenditures for 2026 are expected to range from $52 billion to $56 billion, a 32% increase at the midpoint. Management expects this to translate into an acceleration of depreciation expense starting this year, but revenue will grow even faster.
In fact, management raised its five-year compound annual growth outlook from 20% to 25% for the period beginning in 2024. After 36% growth in 2025, that implies continued annual growth of around 22.4% through the end of the decade. And with strong pricing power, it should maintain high gross margin and improve operating margin. As a result, revenue should grow even faster.
