We recently published a list of top 10 most buzzing AI semiconductor stocks in 2024. Since Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks higher in the list, it needs a deeper look. But first, let’s see what’s happening in the semiconductor industry with a special focus on AI.
The semiconductor industry seems have found a new growth catalyst in the form of AI that could keep it thriving and abuzz for years to come, as analysts see no end in sight for the demand for AI-specific chips needed to power generative AI applications that would be ubiquitous from just a few years from now. Earlier this month, analysts at Citi published a bullish note for semiconductor stocks, citing strong March sales, which jumped about 15.7% year over year to total $50.6 billion. The figure was higher than Citi’s $50.1 billion estimate. Citi analyst Christopher Danely highlighted that most of the demand bump came from analog and microcontrollers, which were up about 50% on a month-over-month basis.
Are AI Semiconductor Stocks Overvalued?
Semiconductor stocks have run so much on the back of the AI boom that many are voicing valuation concerns. And it’s always surprising when such concerns come from Cathie Wood, one of the notable growth investors of this age who poured (and lost) a fortune into hyper-growth stocks trading at eye-popping valuations. In March, Cathie Wood warned that the semiconductor space could see a “correction.” However, Wood clarified that she’s just expecting a “correction” and not an “end” of the sector.
Since the end of March, VanEck Semiconductor ETF (NASDAQ:SMH) is up 10%.
But Cathie Wood isn’t alone in these valuation worries. Analysts believe since the AI-rally is no longer limited to big names like NVIDIA Corp (NASDAQ:NVDA) and MSFT, investors should caste a wider net. And we did just that. Our latest research unlocked many AI-related stocks trading at attractive valuations. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
For this article we used stock screeners and did manual research to see which AI-related semiconductor stocks were generating the most buzz. From these stocks we chose the ones with the highest number of hedge fund investors and strong YTD gains. 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).
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)
YTD Price Performance: +52%
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) surged earlier this month after the company posted blockbuster numbers for April, reporting a 60% increase in revenue for the month. Taiwan Semiconductor Mfg. Co. Ltd.’s (NYSE:TSM) revenue in the quarter ending April 30 increased 26.2% from a year ago. Top companies like Nvidia, Apple, AMD and Qualcomm rely on Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) for their chips. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) shares have gained about 52% so far this year.
Third Point Management stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its first quarter 2024 investor letter:
“During the quarter, we added to our Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) investment, which we initiated in May of last year. TSMC is coming off its worst year since the Global Financial Crisis, and in the years to come we see a combination of cyclical recovery plus structural growth in AI demand fueling substantial earnings growth for the company.
We view TSMC as the “toll road” of the semiconductor industry, particularly for AI compute. TSMC holds more than 90% market share for leading edge semiconductor manufacturing, where all AI silicon is being processed. Beyond their reliable execution producing some of the most complex products on earth in volume, TSMC has spent decades optimizing for and building ecosystems around their 500+ customers, an advantage that cannot be replicated overnight…” (Click here to read the full text)
Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) ranks 3rd in our list of the Top 10 Buzzing AI Semiconductor Stocks in 2024.
If you are looking for an AI stock that is as promising as Microsoft 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.