The past two years have been absolutely stunning for semiconductor stocks, with the PHLX Semiconductor Sector index rising 81% during this period. Artificial intelligence (AI) played a central role in this remarkable surge.
Nvidia (NASDAQ: NVDA) was one of the biggest beneficiaries of this rally, gaining close to 702% in the past two years as companies and governments have been buying its AI chips hand over fist. The company on which Nvidia relies for manufacturing its AI chips has clocked relatively smaller gains of 142% in the last two years.
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Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, is the world's largest semiconductor foundry. Fabless chipmakers, such as Nvidia, which design their chips but don't manufacture them, utilize TSMC's fabs for manufacturing. However, there's more to TSMC than just Nvidia.
Below, I'll examine the prospects and the valuations of these two companies and check which one is the better semiconductor stock to buy right now following the remarkable gains in the past two years.
The case for Nvidia
The biggest reason to buy Nvidia stock right now is its dominant position in the AI chip market. It has built an almost monopoly-like position in AI chips, with some estimates putting its share at more than 90%.
This dominance explains why Nvidia's rivals are nowhere near it when it comes to AI chip sales. For instance, it sold $27.6 billion worth of data center compute chips in the third quarter of fiscal 2025, an impressive increase of 132% from the same period last year. Rival Advanced Micro Devices, by comparison, is expecting to sell $5 billion worth of data center GPUs (graphics processing units) in 2024.
Nvidia's revenue from AI GPU sales was more than 5x the amount AMD expects to generate from this segment for the entire year. On the other hand, Intel's data center and AI revenue in the previous quarter stood at $3.3 billion, up just 9% from the year-ago period. Nvidia, therefore, is leagues ahead of its rivals in the AI chip market.
That's not surprising, considering Nvidia managed to corner a big chunk of TSMC's advanced chip-packaging capacity. According to Taiwan-based daily DigiTimes, Nvidia reportedly secured 60% of TSMC's Chip on Wafer on Substrate (CoWoS) packaging technology for 2025. DigiTimes also says that TSMC is planning to more than double its CoWoS capacity next year.
There's a good chance Nvidia could deliver another year of stellar growth in 2025 because TSMC's capacity expansion should ideally allow the company to fulfill more demand from customers. Reports indicate Nvidia may have sold out its Blackwell supply for almost the entirety of 2025. This is where TSMC's increased production capacity should come in handy.