U.S. hyperscalers came into the year planning to spend over $700 billion to build new data centers. Just three months later, most of them realized they would need to spend even more. Three of the four major hyperscalers increased their capital expenditure (capex) budgets for the year alongside their first-quarter earnings reports. And they may be just getting started.
Leading contract chip manufacturer Taiwan Semiconductor Manufacturing (TSM 1.28%) estimates the semiconductor market will reach $1.5 trillion by 2030, roughly double the amount spent in 2025. That's also an increase from its previous estimate for just over $1 trillion in spending by 2030.
While there are plenty of semiconductor companies experiencing soaring demand amid the current spike in spending, Taiwan Semiconductor (TSMC for short) stands out as a long-term winner among the crowd.
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Few companies are better positioned to capitalize on the growing demand for chips, particularly AI chips, than TSMC. Not only does it have market-leading manufacturing processes, but it also offers advanced packaging capabilities that are becoming increasingly important for efficient AI servers. On top of all that, it has more manufacturing capacity for the world's most advanced chips than everyone else combined
Management updated its 2026 guidance alongside its first-quarter earnings release. It now expects full-year revenue growth to exceed 30%. That said, it expects even faster revenue growth for the entire semiconductor industry this year. Yes, the company expects to lose some market share this year despite its best-in-class technology.
The shortfall stems from rapid price increases in memory chips, which several hyperscalers cited when they raised their capex guidance. However, the memory chip specialists are building capacity that should stabilize pricing and lead to much smaller revenue increases in the future. Meanwhile, TSMC maintains its long-term outlook for 25% annualized revenue growth between 2024 and 2029.
NYSE: TSM
Key Data Points
The company is also spending heavily to meet demand. It told investors to expect capex to come in near the high end of its previous guidance for $52 billion to $56 billion for the year. Management also said the next three years will see significantly larger spending increases than in years past to take advantage of the AI megatrend.
Within TSMC's $1.5 trillion forecast, it expects 55% of spending ($825 billion) to go toward high-performance chips. In other words, by 2030, the segment of the market where TSMC holds a clear advantage will exceed the size of the entire semiconductor market today.
Maintaining the technology lead
TSMC's road map through 2029 suggests it can maintain its current technology lead as the megatrend unfolds. It benefits from a virtuous cycle as the world's largest contract chip manufacturer. Generating more revenue than its competitors enables it to invest more in research and development to maintain its technology lead. That keeps its biggest customers coming back to it year after year, giving the company the confidence to build the capacity its customers need to buy more chips.
Over the coming years, TSMC aims to scale up its next-generation N2 process and build on its A14 process with iterative improvements, providing an easy transition for its customers to technologies that are more powerful and power efficient.
And its advanced packaging capabilities will expand its abilities to combine more logic chips with high-bandwidth memory and optical interconnect to maximize the potential of new AI chips. Increasing available memory and reducing data-transfer latency among chips is one of the biggest bottlenecks in AI training and inference today. TSMC's advanced packaging aims to solve that, and it remains well ahead of the competition in how much it can integrate into a single package.
It's worth noting that Intel is seeing strong demand for its EMIB, which connects multiple chiplets in a single package, making it a competitor to TSMC's CoWoS. But that's largely due to the capacity constraints at TSMC, which should see demand follow as it increases capex to expand capacity.
Importantly for investors, TSMC stock still appears undervalued. Despite their strong performance in 2026, the shares still trade for less than 27 times forward earnings expectations. Meanwhile, analysts expect earnings per share to more than double between 2025 and 2028.
By comparison, Intel trades for over 100 times earnings expectations with much less certainty about its future. The value and certainty investors can get with TSMC make it the best opportunity among chip stocks right now.
