Meet the Monster Stock That Continues to Crush the Market

There is no shortage of artificial intelligence (AI) stocks that have trounced the market over the past few years. Even after a recent tech stock decline, brought on by rising competition from a cheaper AI model created by China-based DeepSeek, many AI stocks are still easily outpacing the market.

Chipmaker Taiwan Semiconductor Manufacturing (NYSE: TSM), also called TSMC, is one such monster stock that continues to crush the market despite the recent rout. At the time of this writing, it has gained 79% over the past 12 months, easily beating the S&P 500's 23% gains.

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Not only is TSMC still outpacing the market, but I also think it still has room to run despite some of the recent pessimism that's entered the AI stock space. Here's why.

Why TSMC stock has easily beat the market

TSMC is one of the world's leading semiconductor manufacturers and, most importantly, the dominant maker of AI chips, producing an estimated 90% of the most advanced processors.

Taiwan Semiconductor has benefited from an increase in AI processor demand driven by companies competing for dominance in the AI market. For example, as OpenAI needs more chips to train ChatGPT, it leads to more orders for Nvidia processors, which in turn drives demand for TSMC's manufacturing.

Another thing pushing Taiwan Semiconductor forward is the fact that its technology is far ahead of other chip manufacturers. It's already a leader in 3-nanometer (3nm) chip manufacturing, which the company says is the industry's most advanced semiconductor technology and is far ahead of even advanced 5nm manufacturing.

TSMC will likely keep this competitive advantage because it will begin its next generation of chip manufacturing, 2nm, later this year. The company says its 2nm tech will be the new standard in advanced semiconductor manufacturing and "will further extend our technology leadership well into the future."

Why TSMC could continue making significant gains

The recent pullback in AI stocks has understandably made some investors wonder whether they should rethink their AI strategies. But what I think some people are missing is that semiconductor demand could actually increase with more-efficient AI models.

For example, Microsoft CEO Satya Nadella said recently that "As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of." He referenced Jevons paradox, which says that when technological advancements make products more efficient to use, demand increases because it's more easily accessible to more people.

In the case of AI processors, DeepSeek's potential to use fewer of them efficiently to build an advanced AI chatbot model could actually spur processor sales. Companies that previously thought they were priced out of developing expensive AI models will begin to buy chips to make their own inexpensive models.

Also, Microsoft and OpenAI are looking into whether DeepSeek improperly used OpenAI data.

TSMC is trading at a discount right now

It's worth restating what's still true about Taiwan Semiconductor, no matter what comes to light about DeepSeek's potential AI advancements:

• AI still has massive implications across nearly every industry.
• Companies will need advanced processors to create new AI models.
• TSMC is still the dominant AI processor manufacturing company.

In short, nothing much has changed for TSMC. Even more good news for investors is that Taiwan Semiconductor's stock can be purchased at a relative discount right now. The shares have a forward price-to-earnings ratio (P/E) of just 23, nearly on par with the S&P 500's forward P/E.

That means the world's leading AI processor manufacturer looks well priced at a time when AI demand is accelerating. That sure sounds like a good buying opportunity to me.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.