15 Best Growth Stocks to Buy for the Next 5 Years

2. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)

Number of Hedge Fund Holders: 158

5-Year Revenue CAGR: 20.53%

Upside Potential as of January 15: 17.03%

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is a chipmaker that supplies advanced semiconductors to tech giants like Apple, NVIDIA, Qualcomm, and AMD. Its dominance in the industry, particularly in AI and high-performance computing, is driven by cutting-edge technology, including 2nm production and leadership in 3nm, 5nm, and 7nm nodes.

The company holds over 60% of the market share and benefits from industry-wide supply constraints, giving it significant pricing power. This has driven a 39% year-over-year revenue increase in Q3 2024, due to the surging demand for AI hardware. The company’s advanced manufacturing, including its crucial CoWoS packaging technology for AI chips, solidifies its leadership in semiconductor innovation.

Bank of America Securities analyst Brad Lin reiterated his Buy rating on the company, setting a $250 price target. Lin anticipates robust revenue growth in 2025 due to the increasing demand for AI and high-performance computing. He also emphasized the company’s attractive valuation, projected margin expansion, favorable industry tailwinds, and the potential for government support.

Wedgewood Partners acknowledged that Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is a top performer due to the surging demand for its advanced chips, which is driven by AI. Despite its dominant market position, it trades at a discount to other large-cap growth stocks, making it an attractive investment opportunity. Wedgewood Partners stated the following in its Q4 2024 investor letter:

“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was another top contributor to performance during the quarter and for the year. The Company’s earnings growth dramatically accelerated compared to last year as the Company’s wafer fabrication and packaging volumes soared in 2024. In addition, the Company customer prices rebounded in the face of more normalized capital expenditures. The Company maintains a near-monopoly in the fabrication of nearly every new AI accelerator brought to market over the past two years. They continue investing tens of billions to build and 7ill future capacity with orders for what seems to be insatiable hyperscale demand for accelerated computing. The stock ended the year trading at a consensus forward earnings multiple that is several points lower than large cap growth benchmarks, despite the Company’s dominant position in the most important industry that is driving one of the largest technological shifts in a generation.”