We recently published a list of Famous Analyst Says You Should Buy the Dip on These AI Stocks. Since Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks 4th on the list, it deserves a deeper look.
Gene Munster, managing partner at Deepwater Asset Management, said in a latest interview with CNBC that the key reason behind the latest decline in tech stocks was major companies projecting high CapEx and giving no updates on AI monetization. Munster, however, thinks AI spending is necessary for these companies to reap rewards in the future. Munster referred to a latest interview of Mark Zuckerberg in which he said if his company does not keep spending on AI it may miss the biggest opportunity in the next 10-15 years. Munster said Zuckerberg believes this AI spending “cannot slow down.”
“I am most optimistic because that CapEX number, if you’re gonna boil it down to one point, it’s gonna be higher for longer and it’s good for AI.”
Asked whether investors should stick with mega-cap AI stocks or move on to smaller companies that could benefit from this AI spending, Munster said that depends on to what degree you believe in the transformative power of AI.
“If you are in my camp.. which I think it (AI) will be more transformative than the internet, then small companies and the big companies are going to participate.”
Munster thinks the AI-led bull market could last for 3-5 years before ending in what he called a “spectacular bubble burst.”
For this article we picked the AI stocks Gene Munster and his firm Deepwater Asset Management hold, according to the disclosures on CNBC. 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 Manufacturing Co Ltd (NYSE:TSM)
Number of Hedge Fund Investors: 135
TSM is one of the top AI semiconductor stocks in Deepwater Asset Management’s portfolio.
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the best AI semiconductor stocks big tech funds are piling into, and for the right reasons. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is the biggest foundry that makes chips for fabless companies, enjoying an over 50% market share. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is behind some of the world’s most advanced chips, including 2nm and 3nm nodes. It supplies chips to major players like Apple (AAPL), Qualcomm (QCOM), and Nvidia (NVDA).
Despite these growth catalysts, analysts believe Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) valuation is depressed amid the Taiwan factor — any conflict between China and Taiwan would hamper Taiwan Semiconductor Mfg. Co. Ltd.’s (NYSE:TSM) business due to its huge reliance on international supply chains. The stock is trading at a forward P/E of 27, much lower than peers like ASML, NVDA and AMD. But some believe these concerns are overblown and there are no short-term risks to Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) from this perspective. Bank of America’s Brad Lin recently increased his earnings estimate and price target for the stock, saying TSMC is the “key beneficiary and enabler of AI prosperity.” Lin set a $180 price target on TSMC. Lin thinks Apple’s latest plans revealed at the WWDC event would bode well for Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) since TSMC makes 25% of its revenue from the Cupertino giant.
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was a top contributor to performance during the quarter. The Company’s revenue growth continued to accelerate due to the rollout of its leading-edge N3 manufacturing node along with strong demand for chips used in artificial intelligence applications. Unlike in traditional CPUs, the Company has blue-chip customers, monopoly market share for manufacturing AI chips, such as GPUs. The Company’s aggressive investment in capital equipment several years ago should continue to pay off as fabless chip designers proliferate and require a manufacturing partner to shoulder capex risk. The Company’s continued aggressive investment and deployment in semiconductor manufacturing equipment is not an easily replicable competitive advantage.”
Overall, Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks 4th on Insider Monkey’s list titled Famous Analyst Says You Should Buy the Dip on These AI Stocks. While we acknowledge the potential of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), our conviction lies in the belief that 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.
