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Many investors have missed out on the incredible rise of Nvidia's (NASDAQ: NVDA) stock. While most don't own it individually, a larger cohort owns it through index fund exposure. Many investors might be looking for the next Nvidia, but rises like that don't happen often.

If you've missed out on Nvidia, I'd propose another company worthy of an investment: Taiwan Semiconductor Manufacturing (NYSE: TSM). The company is benefiting from the same wave that Nvidia is, but it's also more diversified and will be protected in the event of GPU demand falling (which has happened quite often throughout Nvidia's history).

TSMC's investment case is ironclad

Taiwan Semiconductor Manufacturing (TSMC) is the world's largest contract chip manufacturer. This means it takes designs from other businesses and manufactures them. This is no different than a standard machine shop or fabrication specialist; it just happens to be in the semiconductor realm.

TSMC has stayed on top of the competition through its culture of continuous innovation, which has been evident by its consistent chip technology changes. Recently, 3nm (nanometer) chips quickly became a sizable chunk of TSMC's overall revenue (9% in the third quarter of 2024) despite entering production just in Q3 2023. These chips can be configured to be more powerful, more efficient, or both when compared to previous generations.

Despite 3nm chips being relatively new to the market, TSMC is already working on its next generation: 2nm chips. These chips are expected to be available sometime in 2025, and the buzz surrounding them is already impressive. Management stated on its conference call that the demand for 2nm chips is already higher than that for 3nm or 5nm chip launches. This is likely because of the 2nm chips' focus on efficiency, which is a massive cost for companies creating artificial intelligence (AI) models with thousands of GPUs made by Nvidia.

With this game-changing product in the pipeline, investors have a great reason to hold the stock for the long term.

Additionally, management is seeing a huge demand for AI-related chips. Over the next five years, it forecasts this segment will grow revenue at a 50% compounded annual growth rate. When that growth is complete, AI chips will make up more than 20% of TSMC's revenue. That's massive growth and bodes well for its future.

For a more short-term growth driver, TSMC should see a huge boost from its largest customer: Apple (NASDAQ: AAPL). Over the past three years, Apple has made up 26% (2021), 23% (2022), and 25% (2023) of its total revenue. However, Apple's smartphone sales have struggled because of its inability to launch a differentiating new feature. With the announcement of Apple Intelligence, that notion has changed. Because this feature will only be available on the latest generation of phones, it should ignite an upgrade cycle, which benefits TSMC immensely.

Those compelling factors will drive TSMC's stock higher over the next few years; it should also see some financial improvement over the next few quarters.

The stock may be a bit pricey, but its growth supports the valuation

TSMC stock isn't nearly as cheap as it once was. Entering 2024, TSMC traded for a mere 15 times forward earnings.

TSM PE Ratio (Forward) data by YCharts

Its valuation has nearly doubled since then as investors have realized what a great price that was. Compared to Nvidia, which trades at 47 times forward earnings, TSMC does look like a bargain.However, that valuation should continue to come down as revenue rises over the next few quarters.

TSMC has beaten analyst estimates over the past four quarters, so this forward multiple is likely a conservative valuation. Additionally, analysts expect earnings per share (EPS) to rise by 22% in 2024 and 26% in 2025, so its growth should support its valuation.

Although it would be great to go back in time and buy Nvidia at the start of 2023, that isn't possible. Instead, I'd suggest investors pick up shares of Taiwan Semiconductor Manufacturing, as it benefits from similar trends yet trades at a more attractive valuation.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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