We recently compiled a list of the 10 Best AI Stocks to Buy According to Reddit. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other AI stocks.
As artificial intelligence becomes more prevalent in current world affairs, new patterns concerning its research and development strategies are also emerging. Traditionally, academia has focused on basic research and education, while industry concentrated on applied research and commercialization. However, in recent years, the commercial sector’s dominance in AI investment and research has raised concerns about the balance of power. The shift of researchers from academia to industry has also raised questions.
Advanced AI systems increasingly require large amounts of data, compute power, and funding resources that industry actors possess in greater quantities than academia and nonprofits. Hence, AI research, which was originally the domain of academia in the early 2000s is now being taken over by industry.
We recently talked about this division in another article we published, 7 Most Popular AI Penny Stocks Under $5, here’s an excerpt from it:
“A recent study from Stanford University found that businesses train AI models faster than academic institutions. In 2023, the industry-trained AI neared 51 significant machine learning models, while academia managed only 15. This trend persisted in 2024 despite rising training costs. ChatGPT 4, the latest model of ChatGPT, cost about $80 million to train. Google’s Gemini Ultra cost around $191 million.”
A 2021 Stanford report says that the reason behind the blurring roles of academia and industry is that businesses come with affordable cloud computing, open-source libraries, and pre-trained models that incentivize university researchers to pursue commercial applications of their work. More and more industry papers are now appearing at conferences, raising concerns about applied research stifling long-term innovation or being biased toward corporate interests, all while also accelerating solutions for real-world problems.
A 2023 paper in the journal Science states that businesses attract 70% of the top talent with PhDs in AI today, as compared to just 20% 2 decades ago. The number of AI research faculty in academia has stagnated, while industry hiring has surged 8 times since 2006. Industry models being substantially larger (about 29 times), indicating superior computing power, is a huge reason behind this.
In 2021, US government agencies allocated a total of $1.5 billion for academic AI research, while Google spent the same amount on a single project in just one year.
The largest AI models are now developed in industry 96% of the time. Leading benchmarks are also primarily industry-driven, accounting for 91% of the total. Furthermore, the number of published papers with industry co-authors has nearly doubled since 2000.
Yet, there’s another anticipated shift as academic researchers are increasingly able to deploy their inventions in real-world settings. Duolingo, a language learning app developed by academics, is a successful example.
A distinguished MIT professor, Frédo Durand, believes academia can still be a driving force for innovation. He says that 25 years ago, the field of computer graphics in academia faced a similar resource imbalance where the industry created stunning visuals that academia couldn’t match. However, instead of trying to mimic industry, academia took a different path and focused on ideas like advanced lighting simulations, fluid dynamics, and machine learning for animation. These seemingly outlandish ideas eventually became the foundation of modern rendering and graphics hardware.
Durand believes this approach holds valuable lessons for AI research. He emphasizes the importance of academia pursuing unconventional approaches, openly sharing their work, and maintaining a sense of excitement about the field.
However, he recognizes the challenges for academia and suggests potential solutions including increased government funding for academic research, shared research infrastructure, and strategies to keep top AI talent within academia. While industry seems to be taking over AI in general, collaborative partnerships with academia could yield better results. In one way or the other, AI will remain a hot topic in the coming times.
Methodology
To compile our list, we sifted through several active subreddits to compile a list of 15 AI stocks to buy. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturing company that manufactures chips for other companies. Its significant investments in chip fabrication and decades of expertise create a strong competitive advantage.
The quality and standards met at the company are so high that tech giants like Apple and NVIDIA rely on it to make chips for them. The company currently makes up 60% of the total chip manufacturing industry, and an even higher 90% of the advanced chip manufacturing (including 3-nanometer chips).
Second quarter revenue was $20.58 billion, representing a 33.30% year-over-year increase. This growth was supported by strong demand for industry-leading 3- (15% of wafer revenue), 7- (35% of wafer revenue), and 5-nanometer technologies (17% of wafer revenue), offset by the continued smartphone seasonality.
Advanced technology, defined as 7-nanometer and below, was the main contributor accounting for 67% of wafer revenue. The company’s high-performance computing platform (HPC) accounted for 52% of the total Q2 revenue for the first time.
Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) leadership in advanced processes will drive customer growth, stable production, and lower costs. This strong position is why it’s one of the best AI stocks according to Reddit. As of June 30, it is held by 156 hedge funds, with the largest stake valued at $4,937,464,673, held by Fisher Asset Management.
Ariel Global Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also traded sharply higher in the quarter, following its annual shareholder meeting where management highlighted robust earnings visibility. The boom in AI investment is driving significant demand for the semiconductor hardware that enables it. TSMC currently holds a dominant position in relevant chip manufacturing and packaging. Additionally, although AI investments have been mostly focused on the datacenter market, Apple’s recent announcement on “Apple Intelligence” kickstarted an Edge AI race—which will likely drive greater than expected semiconductor growth in smartphones. TSMC is Apple’s sole foundry partner which bodes well for the future. Overall, we continue to view TSMC’s scale, technology, business model, customer service and execution favorably. The fact the company remains committed to returning capital to shareholders through both buybacks and dividends is another plus.”
Overall TSM ranks 4th on our list of the best AI stocks to buy. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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.
