After years of being a theoretical, futuristic idea, artificial intelligence (AI) took the world by storm when OpenAI launched ChatGPT in 2022. Since then, companies that drive AI development have become market darlings, and investors are searching for the next major trend. It started with the big players like Nvidia and Broadcom, moved into data center and energy companies like CoreWeave and Bloom Energy, and more recently has centered around memory powerhouses like Sandisk and Micron.

However, there's one fantastic AI giant that is a critical part of the powerhouse, is growing fast, and is highly profitable, but is often left out of the conversation: Taiwan Semiconductor (NYSE: TSM). Taiwan Semi, or TSMC, stock has gained 689% since ChatGPT was launched, and there's plenty of upside.

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TSMC's role in AI

TSMC is a foundry, and it fabricates the chips according to clients' designs, which means it makes the physical components. It has partnerships with all of the top semiconductor companies, including Nvidia, Broadcom, and Amazon, as well as with other tech giants like Apple. It has a dominant position in semiconductor manufacturing, and it benefits from all of its clients' growth. So instead of deciding to bet on Nvidia or Intel, for example, an investment in TSMC bets on both.

Image source: Taiwan Semiconductor.

AI has led to incredible growth overall, and management is expecting it to continue. CEO C.C. Wei noted extremely positive signals from its AI hyperscaler clients and said that management's "conviction in the multi-year AI megatrend remain[s] very high."

Since the company serves so many clients in varied areas, it benefits from all kinds of AI growth. Nvidia is mostly known for its graphics processing units (GPUs), which have the processing power to handle high AI needs, but TSMC makes the central processing units (CPUs) that have put Intel back in the spotlight for the role they play in agentic AI.

In the second quarter, revenue increased 34% year over year, beating guidance. Gross margin improved by 1.5 percentage points to 67.7%, and operating margin improved by 2.2 percentage points to 60.3%.

The company is investing for the future by opening new locations, including entering the U.S. last year. It has an operating facility in Arizona. This helps it avoid tariffs and be closer to many of its biggest clients, like Nvidia and Apple, both of which are headquartered in California.