We recently published a list of 10 Most Profitable Tech Stocks to Buy Now. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against other most profitable tech stocks to buy now.
Profitability remains one of the most sought-after traits in the technology sector, yet it is also one of the most complex. It is shaped by a delicate balance of investment cycles, competition, and market perception. While topline growth often takes center stage—driving valuations and attracting top talent—sustained profitability becomes crucial as industries mature, competition peaks, and new investments become necessary for survival. In this ever-evolving landscape, technology companies have mastered the art of balancing revenue expansion with profit growth by diversifying their businesses, building vast customer ecosystems, and continuously enhancing product experiences.
Looking ahead, earnings growth will take on an even greater role in determining valuations, particularly as the breakneck pace of growth begins to slow. Investors will increasingly focus on sustainable profitability rather than just rapid growth. In a January 2024 article, Rob Haworth, Senior Investment Strategy Director at U.S. Bank Asset Management, emphasized that technology companies possess strong earnings growth potential, largely independent of traditional business cycles. He explained:
“What is not clear yet is how companies investing in AI as a way to increase efficiencies or monetize services for end users will benefit from these advancements. We’re in a consolidation phase to figure out what revenue growth will be going forward. If AI helps boost productivity, that will support not only current rising stock valuations but individual prosperity as well.”
Franklin Templeton’s 2025 Technology Outlook echoes this sentiment, predicting another year of strong growth in the sector. The report notes that the “Magnificent Seven”—a group of leading tech giants—delivered exceptional earnings in 2024, outpacing both the broader market and the tech industry itself. While these companies are expected to maintain strong momentum, The firm anticipates that the rest of the sector may start catching up in 2025.
Tech investments are projected to grow exponentially in the coming years, reshaping the profitability landscape. Emerging technologies such as artificial intelligence, quantum computing, and autonomous systems present both immense opportunities and significant challenges. Some companies will achieve sustainable profit margins through strategic pricing and ecosystem advantages, while others will struggle under the weight of fierce competition and heavy reinvestment costs. For investors and stakeholders, understanding these shifting dynamics is key to navigating the ever-changing tech sector.
Our Methodology
To identify the 10 most profitable stocks, we conducted extensive research on U.S.-listed technology and tech-adjacent companies with a market capitalization of at least $2 billion. Rather than relying solely on absolute net income, we refined our selection criteria by focusing on companies with both an operating margin and net profit margin exceeding 20%. This approach ensures that high-margin firms are not overshadowed by larger corporations with higher overall earnings. After applying these filters, we ranked the stocks in ascending order based on their trailing twelve-month net income, with the company reporting the highest net income securing the top position.
Note: All pricing data is as of market close on February 14.
At Insider Monkey we are obsessed with 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).
A close-up of a complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
TTM Net Income: $36.5 billion
Number of hedge funds: 158
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest and most advanced semiconductor foundry. As opposed to the integrated device manufacturers (IDMs) such as Intel, TSMC operates exclusively as a pure-play foundry, and does not design its own chips but focuses on high-performance semiconductor fabrication. It plays a crucial role in the global technology supply chain by manufacturing chips for major companies, including Apple, NVIDIA, AMD, and Qualcomm. The company’s margin profile is second best among the companies covered in this list with an operating margin of 46% and net profit margin of around 41%.
With its deep technological prowess, Taiwan Semiconductor Manufacturing Company (NYSE:TSM) generally finds itself at the center of the news flow related to semiconductor manufacturing. On February 15, Bloomberg reported that the company is considering acquiring Intel Corp. (NASDAQ:INTC)’s U.S. manufacturing facilities. This development comes after officials from the Trump administration proposed the idea to Taiwan Semiconductor Manufacturing Company (NYSE:TSM) to bolster American manufacturing capabilities. However, another report from Reuters suggests that some officials suggest that the administration has expressed reservations about a foreign entity operating Intel Corp. (NASDAQ:INTC)’s U.S. factory. These discussions are in preliminary stages, and no formal agreements have been reached. Similar speculation of Intel’s breakup into parts and spin-offs has also been doing the rounds amid which Intel’s share price has rallied 24% in one week.
Taiwan Semiconductor Manufacturing Company (NYSE:TSM) leads in process technology, being the first to mass-produce 3nm chips and investing heavily in 2nm and beyond. As demand for AI, high-performance computing (HPC), and advanced mobile processors grows, TSMC is well-positioned to capitalize on the industry’s shift to smaller, more efficient, and more powerful chips. The company is a consensus buy with an upside potential of around 26%. On January 17, Barclays raised their price target to $255 from $240 and reiterated their Overweight rating on the shares basing their positive view on expected growth from AI.
Overall, TSM ranks 6th on our list of most profitable tech stocks to buy now. While we acknowledge the potential of TSM to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
