Top 10 AI Stocks to Watch In February

4. Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)

Number of Hedge Fund Investors: 158

James E. Demmert from Main Street Research was recently asked on Schwab Network why Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) shares did not grow significantly following a spectacular quarter. The analyst said 2025 will be a “different” year for AI stocks and investors would need to be very “specific” with their trades.

“I think the key point here is that it’s a bit of a microcosm for what we’re going to see this year—spectacular enthusiasm, but more tempered than what we saw in 2023 and 2024 across the semiconductor business in general. I think that’s what you’re seeing with the flow-over from Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), which reported excellent numbers with top- and bottom-line beats. These were really fabulous numbers from what I consider one of the most important companies in the semiconductor business. It was a clean and impressive report. What stood out to me was not just the beats on the top and bottom lines, but the very significant guidance. Keep in mind, they are the backbone of anything AI-related in the semiconductor business.”

TSMC’s high-performance computing (HPC) revenue exceeded 50% for the full year of 2024, with HPC sales reaching 53% of total revenue in the fourth quarter. Smartphones contributed 35% in Q4, underscoring AI as the key growth driver for TSMC in the coming years.

At a forward EBITDA multiple of 11.2x, the stock does not seem overpriced. Compared to the tech sector median, TSM’s forward non-GAAP PEG ratio of 0.75 is significantly lower—about 60% below the peer average of 1.9.

Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q4 2024 investor letter:

“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was another top contributor to performance during the quarter and for the year. The Company’s earnings growth dramatically accelerated compared to last year as the Company’s wafer fabrication and packaging volumes soared in 2024. In addition, the Company customer prices rebounded in the face of more normalized capital expenditures. The Company maintains a near-monopoly in the fabrication of nearly every new AI accelerator brought to market over the past two years. They continue investing tens of billions to build and 7ill future capacity with orders for what seems to be insatiable hyperscale demand for accelerated computing. The stock ended the year trading at a consensus forward earnings multiple that is several points lower than large cap growth benchmarks, despite the Company’s dominant position in the most important industry that is driving one of the largest technological shifts in a generation.”