8. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Year To Date Share Price Gain: 87.93%
Number of Hedge Fund Investors in Q2 2024: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturer. This means that while NVIDIA might design the world’s best AI chips, without TSMC, its designs might be unable to see the light of day. While other contract foundry options such as Samsung and Intel are available, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) by far has the best yields and the most robust operating model to easily churn out thousands of silicon wafers annually. Consequently, the firm’s lead in the industry is undisputed, particularly as billions of dollars in investment are required to set up chip manufacturing foundries. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is currently preparing its next generation 2 nanometer manufacturing process for mass production next year, and rumors suggest that the AI GPUs are made with the N4P manufacturing technology. This is a high end variant of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s 5 nanometer process, and with the 3 nanometer technology already in mass production for less power intensive chips, it’s only a matter of time before this technology is available to AI designers. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also benefits from its packaging investments and is reportedly ahead of schedule with its AI chip packaging capacity.
Baron Funds mentioned Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter. Here is what it said:
“Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world’s leading semiconductor foundry, contributed to performance in the second quarter, driven by continued strong data center AI accelerator demand, optimism on a potential edge AI replacement cycle for smartphones and PCs, and expectations for price hikes next year (“selling our value,” in the words of C.C. Wei, TSMC’s CEO). In contrast with the sluggish broader semiconductor foundry market, TSMC is enjoying a record- breaking year, with management guiding for revenue to grow in the low to mid-20% range year-over-year in 2024, thanks to the company’s near- monopoly in manufacturing the world’s most advanced chips. According to C.C. Wei, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand for energy-efficient computing.” This strong AI demand, coupled with TSMC’s unrivaled competitive position, is driving “a high level of customer interest and engagement at N2” (TSMC new process node which will start production in 2H25), with N2 revenue expected to “certainly be larger” and with a “better margin profile” than N3 (TSMC’s most advanced node today). We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by rapidly growing demand for advanced chips and continued market share gains enabled by its superior technology, reliability, and customer service.”
