We recently compiled a list of the 35 Chip Stocks In Focus Amid Tech Selloff. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other chip stocks.
The semiconductor industry is on a trajectory of rapid growth, with global revenues expected to exceed $1 trillion by 2030. According to a report on the industry by professional services firm PwC, this expansion is fueled by advancements in memory technology, the rise of automotive semiconductors, regional self-sufficiency initiatives, purpose-built silicon, and the increasing demand for artificial intelligence (AI) applications. Per the report, Memory integrated circuits (ICs), particularly DRAM and high-bandwidth memory (HBM), have been the fastest-growing semiconductor segment. In 2024, DRAM is projected to contribute 14% of total semiconductor revenue. HBM, essential for AI and high-performance computing (HPC), is expected to grow at a 64% compound annual growth rate (CAGR) in bit growth and a 58% CAGR in revenue through 2028. As big companies leverage HBM for AI workloads, closer collaboration is required between foundries and memory firms to integrate logic and memory components effectively.
Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and AI News You Should Not Have Missed.
PwC highlights that the automotive semiconductor market reached $76 billion in 2023 and is projected to grow to $117 billion by 2028, driven by electric vehicle (EV) adoption and software-defined vehicles (SDVs). Power semiconductors, particularly those utilizing silicon carbide (SiC) and gallium nitride (GaN), are expected to reach $6 billion, comprising 18% of the market by 2028. Meanwhile, automotive system-on-chip (SoC) revenue was $7 billion in 2023 and is projected to grow at a 17% CAGR through 2028, supporting real-time data processing, advanced driver assistance systems (ADAS), and infotainment. The COVID-19 pandemic exposed vulnerabilities in the semiconductor supply chain, prompting major economies to pursue self-sufficiency. By 2027, approximately $400 billion in government funding is expected to be allocated to semiconductor initiatives.
The US has already awarded $29.5 billion in grants and $25.1 billion in loans, with total investments projected to reach $348 billion by 2030. The European Union has allocated $46 billion for incentives, while China has invested over $190 billion through its National Integrated Circuit Investment Fund and local initiatives. South Korea, Taiwan, and Japan have also introduced tax incentives and subsidies to boost domestic semiconductor production. The demand for custom ICs tailored to specific applications is surging, especially in data centers, video processing, and network security. By 2028, the market for data center custom ICs is expected to reach $24 billion. AI is a critical growth driver for the semiconductor industry, requiring GPUs, accelerators, and HBM. The AI-specific silicon market is forecasted to reach $150 billion by 2028.
Read more about these developments by accessing 33 Most Important AI Companies You Should Pay Attention To and 20 Industrial Stocks Already Riding the AI Wave.
For this article, we selected companies that operate in the semiconductor sector that are in focus as investors exit tech stocks amid fears of an AI bubble. These stocks are also popular among hedge funds. 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).
A close-up of a complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 158
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) makes and sells integrated circuits and semiconductors. In the earnings of the fourth quarter of 2024, the company reported a net revenue of NT$868.46 billion, representing a 39% increase from the previous year. Reuters reported in January that the company has begun producing advanced 4-nanometer (nm) chips for US customers in Arizona. In November, the US government had finalized a $6.6 billion grant to TSM’s US unit for semiconductor production in Phoenix, Arizona. Latest reports suggest that the company plans to build a 1 nm process fab in southern Taiwan.
Overall TSM ranks 2nd on our list of the chip stocks in focus amid tech selloff. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a 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.