AI Stock with Minimal Popularity and Abundant Free Cash Reserve

Unnoticed AI Company Boasts Impressive Cash Reserves and Minimal Market Buzz

TSMC Continues to Dominate the Semiconductor Market Amidst AI Buildout

Taiwan Semiconductor Manufacturing Company (TSMC) has once again proven its dominance in the semiconductor industry, generating over $15 billion in free cash flow this year despite heavy capex spending. This impressive feat is a testament to TSMC's leadership in advanced node manufacturing and strong pricing power.

As the world continues to embrace artificial intelligence (AI) and its numerous applications, TSMC finds itself at the forefront of the AI supply chain. The company's revenue climbed a staggering 44% to $30 billion last quarter, with profits soaring to match. This growth is largely due to the increasing demand for advanced semiconductor manufacturing capacity from companies such as Apple, AMD, and Nvidia, who have entrusted their AI chip design steps to TSMC in recent years.

TSMC is already preparing to move into 2nm, a significant step forward in transistor miniaturization, measured in nanometers. This move positions TSMC as a key player in the race to develop ever-smaller and more powerful chips. Rival Intel, on the other hand, is struggling to gain ground in the foundry business, with continued losses and a lack of progress in the industry.

Stocks with PEG ratios below 1 are generally considered undervalued, and TSMC fits this description. The company is trading at a forward price-to-earnings (P/E) ratio of 24.5 times based on analysts' 2025 estimates and a price/earnings-to-growth ratio (PEG) of less than 0.65. This suggests that TSMC's stock may be undervalued, making it an attractive investment opportunity.

Jensen Huang, CEO of Nvidia, has advised investors to be buyers of TSMC, further endorsing the company's potential for growth. TSMC has also locked in almost every large AI chipmaker as a customer, including Alphabet, who switched to TSMC for its Tensor G5 chip used in its Pixel smartphones.

TSMC's margins have remained strong and have been increasing due to its leadership in advanced nodes. Chip designers are constantly looking to shrink node sizes, and TSMC is the only foundry that has shown it can consistently produce advanced nodes with strong yields. Samsung, a major competitor, has struggled with production yields.

Without TSMC, the current AI infrastructure buildout wouldn't be possible. The company is the top foundry in the world, producing most of the world's advanced chips. TSMC's continued investment in research and development, coupled with its ability to consistently deliver advanced nodes, makes it a key player in the AI revolution.

The U.S. government has recognised TSMC's importance and has made a large investment in Intel to help bolster it. However, it remains to be seen whether Intel can catch up to TSMC's pace and maintain its dominance in the semiconductor industry. One thing is certain, though: TSMC has been one of the biggest beneficiaries of the AI buildout and should continue to be a big winner moving forward.