TSMC Is the Safest Bet in AI After Record Earnings

My perennial favorite stock in Asia, Taiwan Semiconductor Manufacturing Co.  (TSM)  (TW:2330), on Thursday delivered record Q4 earnings, with revenue up 20.5% and profits jumping 35.0%.

The numbers indicate that the world’s largest maker of semiconductor chips is notching record numbers thanks to the boom in artificial intelligence (AI) investment and application. TSMC claims 72% of the world’s chip-foundry production at last count, according to Counterpoint Research. Its nearest rival? Samsung Electronics and its foundry business, with just 7% of the market.

As I’ve noted before, there are incredibly high barriers to entry in chip fabrication. So long as the Taiwan-based company can sensibly manage production and capital expenditures, including its $165 billion layout to build three U.S.-focused chip plants in Phoenix, we can expect earnings records to keep falling. The stock is up 4.1% in early trade on Thursday, and 6.7% at this early stage of the year.

Clouds, But Far on the Horizon

There are geopolitical concerns to observe, with China pushing the limits in its aggressive posturing surrounding self-governing Taiwan, the only democracy in greater China. But TSMC’s chips are vital to both China and the United States, and the company is diversifying with production bases in the United States, Japan and Germany. That’s savvy diversification in what, to me, is the safest bet in the tech sector as a whole, and certainly in the AI industry.

I would not be surprised at all to see TSMC improve on its 43.5% rise in 2025. In fact, I would expect it to excel — provided the AI bubble doesn’t burst, and China doesn’t invade Taiwan. Even if those black swans swam into view, TSMC shares are a solid tech-sector cornerstone of any growth portfolio.

TSMC is cognizant of the risks. On Thursday, it upped its expectations for capex this year to between $52 billion and $56 billion but recognizes the execution risk.

“You’re trying to ask us whether AI demand is real or not,” CEO C.C. Wei said on an earnings call. “We’re investing $52 billion to $56 billion in capex, right? If we don’t do it carefully, that’d be big disaster for TSMC.”

Chip Stocks Surging in Asia

Something tells me that realizing the risks means that they’ll get it right. What’s more, Taiwan and the United States have a trade deal in the works that should be signed later this month or in February, with TSMC certain to be a key part of any pact.

I did force myself to go beyond TSMC, my top Asia pick for 2024, both last year and for this year. So I’ve selected the Japanese chip-testing equipment maker Advantest ATEYY (T:6857) as my top call in Asia for 2026. It is up 6.2% so far this year, almost on par with TSMC. Advantest, too, is agnostic as to which company wins the AI arms race, selling its machines to chip designers and producers regardless of where they’re based.

Tokyo Stocks at Record Levels

Japanese stocks are at record levels, with the yen weak and Japanese Prime Minister Sanae Takaichi likely to call a snap election that would shore up her shaky coalition, as I noted in my last column. Takaichi is counting on her personal popularity to bring her gains at the polls, which should be beneficial for stocks.

With her personal approval rating rising to 78.1%, she looks set to continue the “Abenomics” legacy of her late mentor, Japan’s longest-serving prime minster, Shinzo Abe, by delivering fiscal-stimulus spending from the government and encouraging the central Bank of Japan to keep borrowing costs low. Such initiatives are supportive of Japanese stocks, as is the weak yen, nearing a shockingly high exchange rate of ¥160 to the U.S. dollar.

The Tokyo market broadly moved higher again on Thursday, with the Topix tracking all main listings up 0.7% to end at another record closing high, at 3,668.98. But the blue-chip Nikkei 225 was the only main Tokyo index to decline, down 0.4% off its own record high close of 54,341 on Wednesday. Auto and financial stocks supported the broader market but chip stocks such as Advantest, down 2.5%, fell after tech selling on Wall Street the day before.

At the time of publication, McMillan was long TSM.