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Just because the S&P 500 index is sitting close to all-time highs doesn't mean there aren't good stock deals to be found out there. You just have to look in the right places.

One industry that is becoming increasingly important to our economy and will surely continue to breed some long-term investment winners is the semiconductor industry. The chip market is forecast to see sales rise by 8.8% to reach $601 billion in 2022, according to the Semiconductor Industry Association.The ongoing buildout of data centers and other high-performance applications is a big tailwind for leading component suppliers.

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That tailwind is expected to help two best-of-breed semiconductor companies potentially double in value by 2027 -- Taiwan Semiconductor Manufacturing (NYSE:TSM) and Micron Technology (NASDAQ:MU). Indeed, both stocks have attracted the attention of top investment managers lately, including Mohnish Pabrai of Pabrai Investments and Seth Klarman of Baupost Group.

Here's why these two tech stocks have room to run.

TSMC is the largest dedicated semiconductor foundry in the world.It makes the capital investment in factories and manufacturing chips so that its customers can focus on what they do best, which is product design. Three notable customers are Advanced Micro Devices, Nvidia, and Intel.

There are two reasons to consider buying and holding TSMC stock for the long term. First, it's got a great track record of delivering market-beating returns to shareholders. Over the last 15 years, the stock has returned over 1,000% to investors, which thrashes the 235% gain over the same timeframe from the S&P 500 index.It generated $10 billion in free cash flow over the last year and paid out 90% of that in dividends to shareholders.

Second, what used to be a highly cyclical semiconductor industry is beginning to see narrower peaks and troughs in demand.TSMC's revenue growth has accelerated over the last two years,and management is increasing its capital investment as it sees a period of higher structural growth.

TSMC reported third-quarter revenue growth ( in U.S. dollars) of 22.6% over the year-ago period.As CFO Jen-Chau Huang said on the Q3 earnings call, "We are witnessing a structural increase in underlying semiconductor demand underpinned by the industry megatrends of 5G-related and [high-performance computing] applications."The latter would involve the expansion in data center capacity, which doubled over the last four years.

The stock is not cheap, trading at a price-to-earnings (P/E) ratio of 33,but a more sustained demand trend in the industry should support this valuation. Analysts expect TSMC to grow earnings per share at an annualized rate of 15% over the next five years, which is consistent with industry prospects and the company's past rate of earnings growth.Assuming the stock is still trading around the same P/E, that would deliver a double to investors, not counting the extra 1.47% return from the current dividend yield.

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Micron is a leader in making memory and storage components for everything that matters in tech: consumer PCs, TVs, cars, cloud servers, mobile phones, and the Internet of Things, among others. The two main products Micron is known for are dynamic random-access memory (DRAM) modules and non-volatile memory (NAND) products used in solid-state drives (SSDs).

The stock fell in 2021 over near-term demand in the PC, mobile, and cloud markets, in addition to uncertainty about near-term pricing trends for DRAM products, which have a history of wild swings based on supply/demand.The stock has since rebounded after Micron reported better-than-expected earnings that negated these concerns.

However, Micron's growth over the last five years shows a business riding similar secular demand trends as TSMC. Revenue has doubled to $29 billion, and free cash flow has grown faster, reaching $3.9 billion.While temporary bouts of weak memory pricing can cause lumpy revenue results, the long-term trend has supported growing demand for Micron's products that are essential in the new data economy. Through all the swings in memory pricing, the top line has increased 253% over the last 10 years.

Micron just launched its first DDR5 memory chip, which offers 50% faster data transfer speeds. Along with that release, it also introduced its high-performance 16 GB/16GBpsGDDR6 memory for AMD's RX 6000 graphics processors designed for gaming.Demand for DDR5 is significantly exceeding supply due to non-memory component shortages, but CEO Sanjay Mehrotra expects bit shipments of this product to "grow to meaningful levels in the second half of calendar 2022."

The shares trade at a P/E of 14. That would be a fair valuation for a low-growth, cyclical company, but that description doesn't completely fit Micron's businessconsidering the long-term opportunities across data centers, 5G, cloud computing, AI servers, and a growing gaming industry. As investors recognize Micron more as a growth business, the valuation multiple should expand and potentially lead to a double over the next five years.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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