TSMC [NYSE: TSM] Stock Price Surged Over 103% as AI Chip Demand Makes It the Unrivalled Foundry of the New Era

Taiwan Semiconductor Manufacturing Company [NYSE: TSM] has delivered a 103.98% return over the past twelve months, closing at $397.28 on May 12, with a market capitalisation of approximately $2.06 trillion, as surging demand for the advanced chips that power AI data centres has transformed the company into one of the most consequential infrastructure providers in the global technology industry.

Baron Capital’s Durable Advantage Fund, which highlighted TSMC as a leading performance contributor in its first-quarter 2026 investor letter, noted that TSMC shares rose 11.5% during the first quarter alone as revenue growth of 20.5%, or 25.5% in US dollar terms, exceeded expectations due to the scale and speed of demand for AI chips.

The fund described TSMC’s competitive position as rooted in a virtuous cycle, where the company’s massive scale and profitability generate the capital required to fund industry-leading research and development and capital expenditure, which in turn widens its technological moat and reinforces its pricing power over rivals who lack the manufacturing capacity to replicate its most advanced process nodes.

TSMC controls over 90% of the global market for cutting-edge sub-7 nanometre chip manufacturing, the category of processes that produces the AI accelerators, flagship smartphone chips, and autonomous vehicle processors that define the current generation of semiconductor demand.

The company’s dominance at the frontier of chip manufacturing insulates it from the competitive dynamics playing out among AI chip designers, because nearly all advanced AI accelerators, whether custom chips developed internally by hyperscalers or merchant GPUs from Nvidia [NASDAQ: NVDA] and AMD [NASDAQ: AMD], are manufactured exclusively at TSMC’s 3nm and 5nm process nodes.

Baron Capital’s letter argued that TSMC should be understood as the ultimate picks-and-shovels provider of the AI era, a company that benefits from growth in AI deployment regardless of which specific chip architecture or model provider ultimately wins market share at the application layer.

The fund projected that TSMC will deliver approximately 20% annual earnings growth over the next several years, supported by secular AI-driven demand for leading-edge manufacturing capacity, with both hyperscaler custom silicon and third-party AI chip demand continuing to saturate available production at 3nm and 5nm.

TSMC ranks sixth on the Insider Monkey database of most popular stocks among hedge funds heading into 2026, with 224 hedge fund portfolios holding the stock at the end of the fourth quarter, up from 194 in the prior quarter, representing one of the most significant quarter-on-quarter increases in institutional ownership among mega-cap technology names in the period.

The Baron Durable Advantage Fund itself declined 9.0% in the first quarter, versus a 4.3% decline for the S&P 500, with the fund noting that the majority of its underperformance stemmed from sector allocation decisions rather than stock selection, with TSMC itself contributing positively to performance during what was a broadly challenging start to 2026 given the market disruption triggered by rising oil prices and the escalation of geopolitical tensions in the Middle East.