We recently published a list of Top 10 AI Stocks to Watch In February. In this article, we are going to take a look at where Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) stands against other top AI stocks to watch in February.

Barry Bannister, Stifel’s chief equity strategist, said in a latest program on CNBC that the macroeconomic factors are finally catching up to the AI-led bull market. He expects inflation to remain sticky and no further rate cuts from the Federal Reserve in the short term. The analyst also rejected the notion that the massive tech selloff after the launch of DeepSeek was a buying opportunity.

“Over 30 years ago, we used to joke about how technology was such a displacement event business where new competitors would come in and destroy the entrenched stocks, that it deserved a lower multiple because of that. It’s a short life cycle business that’s got a very short competitive advantage period. But investors forgot about that. They bid up the stocks. The growth relative to value large-cap total return, one divided by the other on a 10-year compound basis, reached the absolute outer limits of the past 90 years. And that exact limit line is exactly where it peaked—the price earnings multiple and the outperformance of growth. So, for us, it’s just a very bubbly market that’s just gotta take some air out of it.”

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For this article, we chose 10 AI stocks currently making moves in the market. With each stock, we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

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

Number of Hedge Fund Investors: 158

James E. Demmert from Main Street Research was recently asked on Schwab Network why Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) shares did not grow significantly following a spectacular quarter. The analyst said 2025 will be a “different” year for AI stocks and investors would need to be very “specific” with their trades.

“I think the key point here is that it’s a bit of a microcosm for what we’re going to see this year—spectacular enthusiasm, but more tempered than what we saw in 2023 and 2024 across the semiconductor business in general. I think that’s what you’re seeing with the flow-over from Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), which reported excellent numbers with top- and bottom-line beats. These were really fabulous numbers from what I consider one of the most important companies in the semiconductor business. It was a clean and impressive report. What stood out to me was not just the beats on the top and bottom lines, but the very significant guidance. Keep in mind, they are the backbone of anything AI-related in the semiconductor business.”

TSMC’s high-performance computing (HPC) revenue exceeded 50% for the full year of 2024, with HPC sales reaching 53% of total revenue in the fourth quarter. Smartphones contributed 35% in Q4, underscoring AI as the key growth driver for TSMC in the coming years.

At a forward EBITDA multiple of 11.2x, the stock does not seem overpriced. Compared to the tech sector median, TSM’s forward non-GAAP PEG ratio of 0.75 is significantly lower—about 60% below the peer average of 1.9.

Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) 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.”

Overall, TSM ranks 4th on our list of top AI stocks to watch in February. While we acknowledge the potential of TSM, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.