Is TSMC the Best AI Stock to Buy in 2026?

Investors looking to buy the best artificial intelligence stocks in 2026 might want to consider Taiwan Semi.

Taiwan Semiconductor Manufacturing Company TSM or TSMC, is the largest, most important semiconductor manufacturer in the world. Nvidia, Apple, and other tech titans rely on TSMC to physically build their cutting-edge chips for AI and beyond.

TSMC is one of the best pure-play AI stocks to buy since it stands to be a winner no matter how the technology evolves or which artificial intelligence companies eventually dominate.

This means Taiwan Semi is one of the best long-term technology investments and is worth considering to start 2026.

The AI chip stock is trading just below its recent all-time highs heading into its Q4 2025 earnings release on Thursday, January 15.

TSMC: Why It’s One of the Best AI and Tech Stocks to Buy and Hold

Taiwan Semi physically builds and manufactures semiconductors. TSMC, therefore, consistently benefits from broad-based technological growth and innovation because chips are the lifeforce behind nearly all technologies, including AI.

But TSMC is not just a chip builder, it is the chip builder. Taiwan Semi reportedly holds a 60% share of the entire foundry market and 90% of advanced chip manufacturing. Nvidia NVDA entrusts Taiwan Semi to manufacture its most sophisticated AI chips, as do other tech titans and Magnificent 7 companies.

These simple facts alone explain why TSM stock has more than tripled the Zacks Tech Sector over the past 20 years, soaring ~3,000%. Taiwan Semi has also nearly doubled Tech over the last three years and the trailing 12 months.

TSMC is boosting its industry-leading 3-nanometer production as Nvidia and others ramp up shipments to help fuel the multi-trillion-dollar AI arms race. Shipments of 3-nanometer chips accounted for 23% of TSMC's total wafer revenue in Q3, up from 20% in the year-ago period, with so-called advanced technologies (“7-nanometer and more”) accounting for 74% of total wafer revenue last period.

The company spent decades perfecting chip manufacturing to end up in its current dominating position. The costs and, most importantly, the internal expertise required to manufacture the most advanced semiconductors in the world have created an almost impenetrable moat around Taiwan Semi.

Taiwan Semi’s moat in one of the most vital industries in the world is something Wall Street and long-term investors crave. The AI chip maker is also addressing one of the biggest potential setbacks, geopolitical fears, by expanding its manufacturing footprint outside Taiwan into Japan and the U.S.

TSMC averaged ~27% revenue growth between FY20-FY24 (not including its -4% YoY decline in 2023). It posted impressive earnings expansion during this stretch as well, outside of the FY23 dip against a tough-to-compete-against boom. Its recent growth is part of a long-term expansion as chips become more important, and it grabbed more market share.

Most recently, TSMC posted another beat-and-raise quarter in Q3, confirming the AI boom remains in full swing. TSMC is projected to grow its revenue by 34% in FY25 and another 21% in FY26 to surge from $90 billion in 2024 to $146.22 billion next year (adding ~$100 billion to its top-line vs. 2020’s $47.7 billion).

Buy Taiwan Semi Now, or Wait Until After Earnings?

Taiwan Semi is projected to grow its adjusted earnings per share (EPS) by 45% in FY25 and 20% in 2026. It has topped our quarterly estimates for 20 periods in a row, but it’s worth highlighting that its Most Accurate estimate for FY26 came in 9% below the current consensus. TSMC’s recent earnings trends mark a bit of sideways movement after a massive upswing.

This backdrop could mean that investors might want to wait for Taiwan Semi to report and offer its 2026 guidance before they jump into the stock, since a pullback could be due, especially if it provides even a slightly subdued outlook.

The AI chip stock has soared 50% in the past 12 months. The stock is trading solidly above its long-term 21-week and 50-week moving averages and near overbought RSI levels on a 10-year timeframe. This means that TSM stock is likely to experience a pullback at some point sooner than later.

TSMC is trading just below its recent all-time highs heading into its Q4 2025 earnings release on January 15. Taiwan Semi, like other AI stocks, might be a bit overheated. 

That said, TSMC trades at a 23% discount to its 10-year highs at 26.0X forward 12-month earnings. The chip maker also trades at a 7% discount to the Tech sector despite its near-term and long-term outperformances.

Alongside its value, Taiwan Semi pays dividends, which are supported by its sturdy balance sheet.

The market-timing game is exceedingly difficult. Perhaps investors want to start nibbling at TSMC now and then add to their positions at its next drawdown or correction. Any pullback to a long-term moving average would offer a great entry point into one of the best AI and tech stocks long-term investors can buy.

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This article originally published on Zacks Investment Research (zacks.com).

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