If you invested $50,000 in Taiwan Semiconductor Manufacturing (NYSE: TSM) -- TSMC for short -- back when it first listed its American depositary shares (ADS) on the New York Stock Exchange in October 1997, and held on, you'd have a million-dollar investment in less than 27 years time. In fact, the stock has risen by more than 3,000% in that time and a $50,000 investment would be worth more than $1.5 million.

While TSMC may not produce the same type of returns in the future, the stock still has the potential to be a millionaire maker.

An AI infrastructure and smartphone winner

If you're looking for a good way to invest in the artificial intelligence (AI) infrastructure build-out, TSMC is a good option. If you're looking for a company that will benefit from a hardware upgrade cycle due to the introduction of AI, TSMC should be at the top of your list. Or, if you're looking for a company that could benefit from the continued proliferation of the types of chips used in everyday devices, from cars to appliances, once again, TSMC is the answer.

Today, many semiconductor companies just design chips and then contract out their manufacturing to third-party foundry operators. Chip manufacturing is a capital-intensive business. It takes a lot of money and years to build new semiconductor manufacturing facilities, and once they are built, such foundries must maintain high utilization levels to be profitable. In addition, there is a constant push in the industry to advance to smaller process nodes (which shrink the component sizes on chips, boosting their density and computing capacities) and also to increase wafer sizes, which lowers costs.

It's not simple by any stretch to run a third-party foundry business -- just ask Intel. That chip giant's foray into the space has been accompanied by mounting losses in the segment as well as technological struggles. But in this arena, TSMC is the clear technological leader.

It's the largest contract semiconductor manufacturer in the world, with an estimated 60% share in the global foundry market. More importantly, though, it is estimated to make 90% of the world's most advanced chips. Its top customers include Nvidia, Broadcom, Advanced Micro Devices, and Apple.

Not surprisingly, TSMC has been a big winner in the AI chip race. Demand for the graphics processing units (GPUs) designed by Nvidia outstripped supply, and there has been a growing trend toward custom AI chips from the likes of Broadcom. This led TSMC to expand production capacities for its most advanced process nodes to keep up with demand.

Meanwhile, its largest customer is Apple -- TSMC uses its most advanced technologies to make chips for the latest iPhones. Forecasters expect that unit sales for that smartphone will rise notably when the iPhone 16 launches due to its AI features, and TSMC is set to benefit.

Bain & Company recently predicted that a surge in demand for GPUs and AI-capable smartphones and devices could cause a shortage of high-end chips. This scenario would only strengthen TSMC's strong semiconductor supply chain position.

With TSMC's services in high demand, the company has been enjoying solid pricing power even as it has increased its production capacity. Morgan Stanley has reported that TSMC is set to raise prices in 2025, including by 10% for AI semiconductors and chip-on-wafer-on-substrate products, by 6% for high-performance computing, and by 3% for smartphones. If the supply of advanced chips remains tight, prices will likely continue to rise in the years ahead.

Is it time to buy the stock?

The AI infrastructure build-out is still in its early innings, and large language models (LLMs) will need exponentially more computing power to be trained as they advance. This computing power is provided by AI chips, which, in many cases, are being produced by TSMC. At the same time, the rollout of end-user devices such as smartphones and laptops capable of handling some AI functions on-device is just beginning. That trend, too, will propel demand for AI-capable chips. In addition, AI systems will likely find their way into products like automobiles and consumer electronics. If so, they'll need powerful chips too.

One of the best ways to play this trend is by investing in TSMC. And the great thing about owning this stock is that it doesn't matter which chip designers or software platforms win the AI race -- TSMC benefits regardless of who comes out on top.

While TSMC is unlikely to return 3,000% over the next 30 years, it certainly can be part of a millionaire-making portfolio. The need for computing power for AI is growing exponentially as LLMs advance. For example, LLMs like Meta Platforms' Llama 4 are expected to need 10 times as many GPUs as Llama 3. This is just the early innings of LLMs, so the number of chips needed should be extraordinarily higher as this advancement continues over the next 10 to 30 years.

In addition, as AI becomes more a part of our lives over the next 20 to 30 years, more end devices will also need chips. It's not hard to imagine something as simple as a coffee maker having chips in it in 10 or 20 years.

And while the law of large numbers does apply to a company the size of TSMC, remember it wasn't too long ago that the thought of a trillion-dollar company was unfathomable, and now there are a few to reach that height. In fact, Microsoft was the sixth-largest company at a $231 million market cap at the beginning of 2001, and today, it is worth over $3 trillion, so a 10x to 15x gain in a mega-cap stock over 25 years is not out of the question.

Of course, all stocks come with risks. If the AI infrastructure buildout fizzles, TSMC could struggle. Meanwhile, some countries may want to diversify away from Taiwan. However, as noted above, the company is building new fabs worldwide, and TSMC is well ahead of the competition, as shown by its 90% market share in advanced chips, which is the most important part of the market moving forward.

Given its valuation and growth prospects, TSMC looks like it will continue to be a big AI winner and could be a part of a millionaire-making portfolio.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $716,988!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 30, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Is Taiwan Semiconductor a Millionaire-Maker Stock? was originally published by The Motley Fool