Taiwan Semiconductor Manufacturing Company Ltd (NYSE:TSM) is gaining momentum as the artificial intelligence frenzy from tech giants drive unprecedented growth.
The Taiwanese contract chipmaker’s leadership in advanced chipmaking continues to strengthen, powered by AI spending by the Big Tech giants, fueling the global AI infrastructure boom.
Taiwan Semiconductor stock gained 51% year-to-date, topping the Nasdaq 100 index’s (which includes Taiwan Semiconductor) 20% returns.
Also Read: Nvidia And Taiwan Semiconductor Make First US-Built AI Chip In Historic Milestone
Strategic Significance and Valuation
Taiwan Semiconductor retains its pivotal global significance, supported by the concept of a “silicon shield protecting Taiwan,” Dan Nystedt of TriOrient Investments noted in a recent CNBC Squawk Box Asia interview.
The massive AI infrastructure buildout magnifies the strategic importance that the company enables.
Nystedt underscored Taiwan Semiconductor’s manufacturing criticality, agreeing that the company would be fine without Nvidia Corporation (NASDAQ:NVDA), implying the foundry’s foundational nature in the chip ecosystem.
This dynamic raises questions about their respective market valuations, as Nvidia trades at roughly 30 times earnings, while Taiwan Semiconductor is at approximately 20 times. Nystedt concluded that it appears to be undervalued.
He emphasized that Taiwan Semiconductor’s dominance in global chipmaking remains unmatched, with even Intel Corporation (NASDAQ:INTC) outsourcing its graphics processors, the backbone of AI chips, to Taiwan Semiconductor.
Capital Expenditure and AI Infrastructure Projections
Responding to robust AI demand, Taiwan Semiconductor has aggressively lifted its full-year guidance and boosted its capital expenditure to between $40 and $42 billion this year.
This investment aligns with the AI revolution Nvidia CEO Jensen Huang projected, which could require $3 to $4 trillion in infrastructure spending by 2030.
Nystedt acknowledged the risk of a “reversal of AI demand or AI hype” but emphasized that Taiwan Semiconductor works closely with customers to gauge real demand and avoid overbuilding capacity.
Advanced Wafer Pricing Trends
The immense costs associated with cutting-edge chip production are evident in pricing. The average price per wafer is now about $8,000, a significant increase from 2021, with the latest 2-nanometer wafers demanding an expected $30,000 per wafer, Nystedt highlighted.
He pointed out that AI investments are supported by deep-pocketed players like Alphabet Inc. (NASDAQ:GOOGL), Google, Amazon.com Inc. (NASDAQ:AMZN), Meta Platforms Inc. (NASDAQ:META), and Microsoft Corporation (NASDAQ:MSFT), which continue to splurge on massive infrastructure projects.
Innovative Financing in the AI Boom
Nystedt also commented on the financing dynamics of the AI boom, noting that companies like Nvidia and OpenAI are forming creative partnerships—such as exchanging graphics processing units for equity—to sustain multitrillion-dollar infrastructure plans projected to reach up to $4 trillion by 2030.
He added that major financial institutions, including BlackRock, Inc. (NYSE:BLK) and JPMorgan Chase & Co. (NYSE:JPM), are now entering the AI infrastructure race through large-scale data center acquisitions.
Financing this expansion has led to innovative deals, including circular pricing where firms like Nvidia deploy GPUs as investment capital. To ensure stability, the Taiwanese government is reportedly considering classifying AI infrastructure as a major public works category to attract long-term funding.
Price Action: TSM stock was trading higher by 0.72% to $299.85 premarket at last check Tuesday.
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