The artificial intelligence (AI) infrastructure market is booming, with demand for AI data centers surging. Chip designer Nvidia (NVDA 0.04%) has predicted that AI data center capital expenditures (capex) could grow at a 40% compound annual growth rate (CAGR) over the next five years to between $3 trillion to $4 trillion by 2030.
Given the current market trends, that doesn't seem like a stretch. Right now, the big three cloud computing companies -- Amazon, Microsoft (MSFT 2.45%), and Alphabet (GOOGL 2.71%) (GOOG 2.68%) -- are all aggressively spending on data center capex with plans to significantly increase their spending in 2026. The same holds for neocloud companies, like Nebius Group and CoreWeave. Importantly, this spending is being driven by insatiable demand for compute services, which is seeing demand outstrip capacity even with this huge spending.
Image source: Getty Images.
At the same time, OpenAI has made huge commitments to spend an obscene amount of money on data center infrastructure in the coming years. This includes a massive $300 billion, five-year deal with Oracle, which will build large-scale data centers to support the large language model (LLM) company's computing power needs. Notably, OpenAI has struck partnerships with both Nvidia and Advanced Micro Devices (AMD +0.40%), with which it took an equity stake for graphics processing units (GPUs), as well as one with Broadcom (AVGO 1.23%) to help develop and deploy custom AI ASICs (application-specific integrated circuits).
Nvidia remains the AI infrastructure chip leader with its GPUs, but the OpenAI deal demonstrates how competition in the space is heating up. AMD is making some inroads with inference, where Nvidia's CUDA software platform provides less of a moat, and even a large Nvidia customer, Microsoft, has started to develop toolkits to translate CUDA code to AMD's ROCm platform to be able to use more AMD GPUs. At the same time, Alphabet has shown how custom AI ASICs can be a cost advantage, which is leading to other companies working to design their own.
And that is why, as the AI infrastructure market booms, the biggest long-term beneficiary could be Taiwan Semiconductor Manufacturing (TSM +1.74%).
NYSE: TSM
Key Data Points
The chip manufacturing leader
The biggest reason to own TSMC stock is that it wins regardless of which chip designer comes out on top, because it is the one making the actual chips for all of them. Manufacturing advanced chips is an extremely complex process with a lot of up-front costs to build and run fabs (chip manufacturing facilities), which is why nearly all chipmakers leave this job to third-party manufacturers like TSMC.
TSMC is just one of three companies that manufacture advanced chips, along with Samsung and Intel. However, its rivals have struggled to produce chips at small node sizes (meaning how many transistors can fit on a chip) at scale with minimal defects per wafer. Low yields increase costs for the manufacturer and hurt gross margins, which can lead to large losses. It can also cause chip reliability concerns and lower volumes.
As such, TSMC has essentially become the only game in town for chipmakers that need their advanced chips produced in large quantities. This has allowed it to become a close partner with top chip designers, with whom it works closely to build out capacity to meet their future demand. This gives TSMC great visibility into future chip demand, and its AI chip demand forecast closely mirrors what Nvidia has projected for data center capex spending over the next several years.
On top of that, TSMC's invaluable position in the semiconductor supply chain has also given it strong pricing power. That is expected to continue next year, with media outlets reporting that the company is expected to raise its prices by between 3% to 10% in 2026.
With a near monopoly on advanced chip making, TSMC is the stock you want to own as the data center spending continues to ramp up.
