S&P 500 Correction: 1 Incredible AI Stock That I'm Buying Now and Holding Forever

With the S&P 500 (SNPINDEX: ^GSPC) closing 10% below its all-time high, it's now in correction territory. While nobody likes seeing their holdings decline by 10% or more, corrections occur about every year, so nobody should be surprised when they happen. However, the market has always recovered to a new high after every correction in history, so it's safe to say that investors should view this pullback as a buying opportunity.

One stock that I'm loading up on as the market declines is Taiwan Semiconductor (NYSE: TSM). It's one of my top artificial intelligence (AI) picks and has many tailwinds blowing in its favor. It's a stock that I plan on holding on to forever (unless something drastic changes). At this writing, it's down even more than the broader market, with shares down around 25%.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

I think now is an excellent time to scoop up this long-term winner, as it could provide massive gains over time to investors who are patient with it.

Chip demand has never been this high

Taiwan Semiconductor is the world's largest chip manufacturer. Unlike some of its competitors, TSMC isn't marketing its own chips. Instead, it sells production capabilities, which makes it a lucrative partner to do business with, as its clients aren't competing against Taiwan Semi in the open market.

Among TSMC's client list are Apple, Nvidia, and AMD. In many cases, TSMC makes chips for competitors, like it does with Nvidia and AMD. This puts TSMC in a neutral position, as it isn't an investment in one company or another; it's a bet that the world will use more advanced chips, and more of them.

To me, that's a foregone conclusion, so Taiwan Semiconductor's long-term investing thesis is airtight.

In the short term, investors are worried that Taiwan Semi's products could be hit with tariffs because a large majority of them are built outside the U.S. However, Taiwan Semiconductor seems to have sidestepped these tariffs by announcing an additional $100 billion investment in U.S. production capacity.

While Taiwan's president and TSMC's CEO both stated that the $100 billion investment wasn't because of pressure from President Donald Trump, it really doesn't matter. Trump has been clear: If a company moves its production to the U.S., it can avoid tariffs. That's exactly what TSMC is partially doing, which has appeased the Trump administration, at least for right now.

Still, this expansion in the U.S. is a smart move for Taiwan Semiconductor, as it is trying to build chip foundries where the demand is located. Taiwan Semi's current U.S. facilities have sold out chip production capacity through 2027, so there's clearly huge demand for U.S.-produced chips. It also diversifies the company's global footprint, as one thing that looms over Taiwan Semiconductor is a potential takeover of the island of Taiwan from China. While this is still a threat, a bigger global footprint decreases the overall risk of the stock.

With Taiwan Semi's short-term and long-term theses looking great, the stock seems like a no-brainer buy, as long as it has growth in store and can be bought for a reasonable price. Fortunately for investors, both of those are true.

The stock is priced at a cheap level, considering its growth

Because Taiwan Semiconductor is in a neutral position in the chip manufacturing space, it can see what demand is coming to its facilities years in advance. This allows management to make great predictions about growth.

Over the next five years, TSMC's management projects that AI-related revenue will grow at a jaw-dropping 45% compounded annual growth rate (CAGR). Overall, Taiwan Semi expects its revenue to grow near 20% CAGR. Considering Taiwan Semi's size, that's monster growth, and investors should be willing to pay a premium to own a growth stock like that.

However, you don't have to pay a premium. TSMC's stock trades at an attractive 18.9 times forward earnings, which is the cheapest it has been in nearly a year.

TSM PE Ratio (Forward) data by YCharts

Compared to the S&P 500, which trades at 21.2 times forward earnings, TSMC already trades at a fairly large discount to the market.

As a result, I think that TSMC is an excellent stock to buy now and hold for several years to allow the compounding effect of growth from AI chips to take place. Taiwan Semi is one of the best stocks to buy during this drawdown and will continue to be one of my largest holdings.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $315,521!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $40,476!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $495,070!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Continue »

*Stock Advisor returns as of March 17, 2025

Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.