3 stocks profiting from the AI chip bottleneck beyond TSMC

- By Stephen McBride, Chief Analyst at RiskHedge

The largest chipmaker in the world, Taiwan Semiconductor (TSM) is crushing it.

TSMC just posted its fourth record quarter in a row. Profit jumped 50% from a year ago.

For a company this big, that is wild. You do not see growth like that unless you are sitting right in the middle of a choke point.

In TSMC’s case, that’s AI chip production.

Most of the advanced chips powering AI still have to pass through TSMC’s fabs. Nvidia GPUs. AMD accelerators. Apple chips. Custom AI silicon from the hyperscalers. Different logos on the front end. Same bottleneck underneath.

The world wants more high-end AI chips than it can currently make. Demand is rising faster than supply and that puts TSMC in a beautiful position.

Every time Big Tech spends another billion on AI servers, data centers, and next-gen infrastructure, a sizeable chunk of that money flows through Taiwan.

This is why TSM stock has surged 133% over the last year.

TSMC is the obvious big-picture way to play the AI chip production bottleneck.

But inside that bottleneck are smaller choke points. And 3 AI stocks in particular that should interest investors.

In September 2018, I recommended our first AI stock…

I said, “If we could only buy one stock for the next five years, it would be Nvidia (NVDA).”

I showed you why GPUs are ideal for “training” machines to think like humans. And how every big tech company was training its AI on Nvidia GPUs.

Of course, this was a few years before ChatGPT launched. But it was our first taste of the huge gains you can make once AI finds a new bottleneck. AI demand exploded, and every company was tearing the hinges off the door to get their hands on AI chips.

Nvidia has surged roughly 1,100% since ChatGPT launched… and about 2,700% since our 2018 recommendation.

The next AI bottleneck was…

Networking.

Unsexy hardware that lets thousands of GPUs behave like one giant computer. Stocks tied to server racks, fiber optic cables, and cooling took off. Names nobody had talked about since the dot-com era.

Vertiv Holdings (VRT) surged 148% in 2024.

Then the bottleneck shifted to power. As AI models improved, electricity demand exploded. ChatGPT 5.2, for example, consumes as much power as tens of thousands of US homes.

Suddenly, boring old utility stocks became market leaders.

Constellation Energy (CEG), Talen Energy (TLN), and GE Vernona (GEV) all outperformed Nvidia last year.

The latest AI bottleneck was memory chips…

Every AI task boils down to two things happening at extreme speed: A logic chip doing math, and that chip constantly pulling data from memory.

As AI models improve and grow more complex, memory becomes the limiting factor.

It’s why memory stocks are soaring today.

The next AI bottleneck you should invest in is…

The companies that make the machines that build the chips.

TSMC just announced it will spend a record amount of money expanding its factories and buying new equipment this year.

This is TSMC admitting it can’t make chips fast enough.

The chipmaking industry has always moved in boom-and-bust cycles.

When demand spikes, chipmakers rush to build new factories and buy new equipment. Once capacity comes online, that’s usually when everyone realizes they built too much. Then the cycle resets. Demand slows, prices fall, and spending gets cut. Then, the next shortage forces the whole process to start again.

During the pandemic years, that cycle went into overdrive.

TSMC overbuilt aggressively because the world was facing a historic chip shortage. You couldn’t buy a new car without waiting months. PlayStation 5s were rarer than Taylor Swift tickets. Entire supply chains froze.

That overbuilding created a cushion.

When the AI boom hit, chip demand exploded, but TSMC didn’t need to build new factories. Most of the surge was absorbed by spare capacity left over from the COVID buildout.

That phase is now over.

TSMC’s spending has finally pushed past its COVID-era peak, signaling that the slack is gone. The company now says it expects to spend $52 billion to $56 billion expanding production capacity, its largest investment budget ever.

A handful of AI stocks will capture the majority of that spending.

Chip factories are insanely expensive.

A modern, leading-edge fab now costs close to $30 billion to build from scratch. Besides nuclear power plants, they’re the most expensive structures on Earth.

Between 70% and 80% of the total cost of a chip factory goes into the machines inside it. The tools that actually print, shape, and inspect the chips.

As chips get smaller, the number of manufacturing steps doubles. Double the steps = double the equipment needed for the same output.

Chips are absurdly tiny. A 2nm chip is about 40,000X to 50,000X thinner than a human hair. Making them requires extreme precision. And only a handful of companies build the machines capable of doing it.

ASML Holding NV (ASML) was our very first recommendation. It makes the lithography machines that carve microscopic transistors with lasers onto silicon wafers. A single ASML machine costs around $350 million. That’s roughly the price of a Boeing 787 Dreamliner… for one tool.

Then there’s Applied Materials (AMAT). Its machines build chips by stacking and shaping hundreds of microscopic layers, one on top of another, until a finished chip emerges. Think of it like 3D printing at the atomic level. Each machine cost tens of millions of dollars. And fabs need several dozen of them to scale production.

Or consider KLA Corp. (KLA). Its inspection and measurement tools catch microscopic defects before they destroy yields. As chips get denser and more precise, these systems become non-negotiable. Top-tier chip factories easily spend over a billion dollars on KLA’s tools.

Chip-making equipment stocks have already started moving.

KLA Corp. climbed 55% year-to-date. ASML jumped 31%. And Applied Materials rallied 57%.

These are the picks, shovels, and excavators of the AI boom. And now TSMC and other chipmakers are buying them by the boatload.

I think this is just the opening salvo.

TSMC is a good stock to buy. But these 3 AI socks are even better. They could easily double in 2026.

I suggest you grab some before Wall Street rushes into companies that build the machines that build the chips.

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Stephen McBride is Chief Analyst at RiskHedge. To get more ideas like this sent straight to your inbox every Monday and Friday, make sure to sign up for The Jolt, a free investment letter focused on profiting from disruption.