Taiwan Semi and AI Stocks

Kevin W. Frisz
Jan 15
3 min read

Updated: Jan 16

January 15, 2026

Summary

Anyone remember our “2026 outlook” from last week? There were several big questions that need answering. Question #1: “How sustainable is AI growth?”

Well, good news! We got a big data point today. Taiwan Semi (TSM), the maker of nearly all high-end chips, reported strong 4Q results. And more importantly, they gave strong guidance. (In your prayers before bed tonight, please thank whatever God you pray to.) The AI chip sector is rallying today.

In other news, we got strong results from two of the three big investment banks – Goldman and Morgan Stanley.

Lastly, let’s notice what we “didn’t” get this morning – we didn’t bomb Iran! Iran closed their airspace for a few hours last night. So it looked bleak for a while. But apparently Trump wasn’t bluffing yesterday. And so oil prices are dropping sharply – down 4.5% at the moment. Gold is down slightly.

Strong earnings and less existential risk make the market a happy guy.

TSM Earnings and AI

Let’s back up a second. Why is AI so important to the market? AI and AI-related stocks currently account for roughly 35% of the S&P 500 index. In other words, your index fund has a massive bet on AI growth. Of that 35%, roughly 13% is semiconductors.

And Taiwan Semiconductor Manufacturing Company (TSM) is the most important company that you’ve probably don’t know about. Why is TSM so important? TSM is the one who makes all the chips! Nvidia and AMD design their chips, but they rely on TSM for the actual production. It’s called a “foundry”.

Making super high-end semiconductors is one of the most technologically complicated feats on the planet. In fact, only one company on earth has shown an ability to do it at scale – TSM. Intel (INTC) is trying to get into that business, but they’re finding it difficult. (We’ll save that for another day.)

So why haven’t we heard of TSM more? Because it’s not a US company. It’s not even in the S&P 500 index. If it were, it would be the 6th largest stock in the market, or roughly the same size as Walmart, Exxon, and Bank of America -- combined.

And TSM reported earnings this morning. Their 4Q results were strong. Revenue was about inline, but profit margins were better than expected. More importantly, their guidance for the upcoming year was stronger than expected. They expect revenue growth of +30% (the street was looking for 25%). Also importantly, they expect to spend more on capital investment than the market had planned -- $54billion(ish), about 10% higher than expected. That will benefit the “semi equipment” makers. Yes, there’s a whole category of large cap tech stocks that sell equipment to make semi conductors, including Applied Materials (AMAT), LRCX (LRCX), and others.

Overall, it’s gonna be a couple weeks before we get more results from the big AI companies. So this is a huge sigh of relief for now.

Goldman and Morgan

Two of the three large investment banks reported today – Goldman Sachs (GS) and Morgan Stanely (MS). Both stocks have significantly outperformed the market over the past 3, 5, and 10 years. [Past performance is not a guarantee of future results.] So their weight in the index has grown. Both stocks are now in the top 50 in the S&P 500.

Results at both were strong. Backlog for new advisory deal flow was better than expected. Trading and investment management were both strong. I’d expect earnings estimates to rise higher for the full year at both companies. The only thing that worries me with these stocks is that their valuations have now expanded well past their historic averages. But strong earnings drive everything else. So as long as results stay strong, the valuations should be well supported.

Eli Lilly

LLY, one of the two big makers of the “fat shot” drugs, is under pressure today. Apparently, its oral pill version of the shot will be delayed by a couple quarters. This will give its chief competitor, Novo Nordisk (NVO), more time as only player with a pill form. LLY is the largest stock in the healthcare sector, and the 10^th largest stock in the S&P 500.

Final Thoughts

Let’s call today a “sigh of relief” day. We didnt bomb Iran. No one has mentioned invading Greenland (yet). And AI demand appears to be still strong. That’s a magic trifecta in my mind!

Energy and healthcare are pulling down the market a little bit. But it’s a good day for growth stocks.

Interestingly, it’s also a good day for small-cap stocks. Small caps are outperforming significantly so far this year! That’s somewhat unusual, as small caps underperformed the S&P 500 in 8 of the past 9 years. So any sign of life there is somewhat noteworthy. We’ll continue to keep an eye on them.

Happy Thursday everyone.