12 Reddit Stocks with High Potential

3. Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM)

Number of Hedge Fund Holders: 186

Average Upside Potential as of April 15: 56.25%

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) manufactures, packages, tests, and sells integrated circuits and other semiconductor devices. It provides various wafer fabrication processes, such as processes to manufacture complementary metal-oxide-semiconductor (CMOS) logic, mixed-signal, radio frequency, embedded memory, bipolar CMOS mixed-signal, and others.

The company’s dominance in the market is evident as it increased its market share from 63% to 67% in Q4 2024 while maintaining over 90% market share in advanced chip manufacturing. TSMC’s 3nm and 2nm process yields outperform its closest competitor, which is Samsung, by 20% and 40%, respectively. These advanced process technologies are needed to develop high-performance AI chips.

In 2024, the company’s HPC segment made up 51% of its total revenue. The segment’s revenue rose by 58% year-over-year which was driven by AI-related applications. The company’s AI accelerators, which contributed a mid-teens percentage to its total revenue, include AI GPUs, AI ASICs, and HBM controllers. Taiwan Semiconductor Manufacturing Company Ltd. (NYSE:TSM) forecasts that revenue growth from AI accelerators will reach a mid-40% CAGR for five years starting from 2024.

The company’s results and guidance showcased strong AI chip demand, which is why Sands Capital Technology Innovators Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q4 2024 investor letter:

“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) third-quarter 2024 results and guidance showcased strong continued demand for artificial intelligence (AI) chips. Revenue increased by 29 percent, and earnings saw a 54 percent rise year-over-year. Gross margins were at their highest since 2022, bolstered by price hikes and record utilization at both the 3 nanometer (nm) and 5nm nodes. TSMC’s full-year revenue outlook was revised upward from 25 percent to 30 percent growth. The company also anticipates higher capital expenditure in 2025, a leading indicator for revenue.

Meanwhile, TSMC’s competitive position within the leading-edge chip fabrication industry has improved. The company noted that demand for its next-generation 2nm (N2) node is considerably higher than for its predecessor, N3. Additionally, TSMC has more capacity for N2 than N3. This situation contrasts with Intel and Samsung, which both recently disclosed struggles in ramping up their leading-edge nodes. Together, Intel and Samsung account for approximately $25 billion of foundry revenue, which could potentially migrate to TSMC over time…” (Click here to read the full text)