Nvidia (NASDAQ: NVDA) is up over 18,000% in the last 10 years. It is one of the best-performing stocks in the world during that time and is now the third-largest company in the world by market capitalization. With its lead in innovation on artificial intelligence (AI) computer chips, I believe holders of Nvidia stock will do well over the long term.

However, I think there is a better company in the semiconductor sector to buy instead of Nvidia: Taiwan Semiconductor Manufacturing (TSM 0.57%). Known as TSMC, this gigantic manufacturer is the company that actually makes computer chips for Nvidia and a whole host of other computer chip designers. Here's why I believe the company will be worth more than Nvidia 10 years from now.

It all starts with TSMC

A relatively unknown company compared to Nvidia, TSMC is a contract manufacturer that builds computer chips for other companies, but does not design and compete to sell computer chips itself. It has a wide range of customers such as Apple, Nvidia, and Broadcom.

Through its relentless drive to improve its manufacturing processes, TSMC is the only company in the world outside of maybe Samsung that can build cutting-edge computer chips utilized for AI products. For that reason, customers such as Nvidia will have a hard time leaving TSMC for another manufacturer or risk falling behind in the semiconductor AI race.

From my seat, TSMC seems to have most of the power in the situation. Reports are coming out that TSMC may raise prices by 30% at its fabrication facility in Arizona in order to pass on tariff costs to customers. It would be close to impossible for customers like Apple or Nvidia to leave because of these price hikes or try to manufacture these chips themselves. TSMC customers are essentially forced to take whatever price the company says its chips will cost.

Steady growth, customer diversification

TSMC has not grown its earnings as explosively as Nvidia, but it is still one of the largest companies in the world when measured by operating income. The company generated almost $46 billion in operating earnings over the past 12 months compared to Nvidia's $81.5 billion.

Backed by the steady long-term growth in demand for semiconductors and computer chips around the world, TSMC should be able to keep up this steady growth over the next 10 years. It is also has customer diversification that will help it stay strong regardless of where semiconductor demand is originating. If Nvidia loses market share and competitors such as Advanced Micro Devices or homegrown chips from Amazon and Alphabet gain share, that is still going to boost TSMC's bottom line. If Apple loses market share to another smartphone maker, that company will most likely also be using computer chips made at a TSMC factory.

Nvidia is a bet on a single company's ability to innovate ahead of the competition, which has been a good bet for years. However, it makes Nvidia a much riskier stock than TSMC, with TSMC holding most of the power in the relationship and having much broader exposure to the entire semiconductor market.

NVDA Operating Income (TTM) data by YCharts

Why TSMC will be worth more than Nvidia in 10 years

Due to the power dynamics of the relationship, TSMC stock should be worth more than Nvidia 10 years from now. It has a current market cap of $818 billion compared to Nvidia's $2.5 trillion, making the leap not so far-fetched. For most of its history, Nvidia has been worth less than TSMC when measured by market capitalization and has generated a smaller level of annual earnings.

TSMC can raise prices on customers to pass off any inflation or tariff costs impacting its own income statement. Its customers such as Nvidia will have to eat these costs, transferring what was once a profit for Nvidia to a profit for TSMC. Nvidia has no choice but to accept these price hikes if they occur due to the tariff policies of the United States.

Nvidia has benefited mightily from the boom in AI spending in the last few years. But it is not guaranteed to be the leading semiconductor brand 10 years from now. Given its immense lead in semiconductor fabrication and the difficulties a company would have to go through to replicate its factories (both technologically and in terms of actual money spent), TSMC is likely to be the leading manufacturer of advanced semiconductors 10 years from now.

For these reasons, I think TSMC will be worth more than Nvidia 10 years from now and perform better for shareholders who buy at today's prices.