We recently published a list of 10 Best Stocks to Buy and Hold For The Next Decade. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other best stocks to buy and hold for the next decade.
Is Nuclear Energy Making a Comeback?
Nuclear plants continue to re-open, but the question stands, will the global supply be able to meet the ever-growing demand for clean energy? On October 1, Aniket Shah, Jefferies’ global head of sustainability and transition strategy, appeared in an interview on Yahoo Finance to discuss his stance on nuclear energy making a comeback amid the AI boom.
Shah shares that the nuclear energy boom is not surprising. Looking back, the United States signed significant partnerships to boost the supply of nuclear energy years ago, indicating that the value this sector holds is not unknown or recent.
He adds that the big tech companies are going to be primary catalysts and will influence the entire market. These companies will invest millions and billions in nuclear energy, making the transition easier for other companies to follow. According to Shah, some key investment areas would be small modular reactors and nuclear fusion.
Shah also acknowledged that the United States held a bipartisan view of the nuclear boom, explaining why regulations and acts in favor of nuclear energy are being passed at notoriously high speeds. While the building blocks of nuclear energy are coming together, Shah remains concerned over the execution. He highlights that the United States does not have enough skilled labor and resources to make the nuclear energy boom a reality and must work extremely hard to make it happen.
Nuclear Energy is Poised for Growth Amid AI Boom
One of the most opportunistic investment themes in 2024 is AI, the other is electrification, and both require a lot of power. The surge in power demand is in turn driving utility stocks. On October 4, Durgesh Chopra, Evercore ISI managing director, appeared in an interview on Yahoo Finance to discuss how utilities could benefit from AI-driven power demand.
Chopra highlights the biggest catalyst for companies like Vistra and Constellation Energy is data centers’ needs for a 24/7 source of clean energy. Therefore, nuclear companies must grab the opportunity and enter into long-term contracts to lock in future growth as soon as possible.
There are multiple projects in the pipeline in the United States, that add up to roughly 1.5 gigawatts of energy, positioning nuclear plants as the next big thing in energy. On the flip side, balancing supply and demand will be a key challenge for companies.
Despite the challenges, he believes that the market is well-positioned for growth in utilities. Utilities have not seen demand growth in the past decade, but things are finally changing for the sector. Overall, with inflation going down, the sector may experience significant tailwinds. Chopra also emphasized that growth in this sector will yield results in five to seven years.
Our Methodology
To come up with the 10 best stocks to buy and hold for the next decade, we sifted through multiple similar rankings and compiled an initial list of 20 stocks. We then ranked the top 10 based on their hedge fund sentiment at the end 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) ranks fourth on our list of the best stocks to buy and hold for the next decade. TSMC is a semiconductor manufacturing and design company. The leading fabrication entity makes chips for tech giants including Nvidia and AMD.
TMSC expects its 2024 capital expenditure budget to lie between $30 billion and $32 billion. Of this, 70% to 80% of the budget will be allocated to advanced process technologies, nearly 20% will be directed to specialty technologies, and 10% will be spent on advanced packaging, testing, and mass-making. Recently, TMSC formed a joint venture with Robert Bosch GmbH, Infineon Technologies AG, and NXP Semiconductors N.V. to launch a semiconductor fab in Dresden, Germany. The joint venture, European Semiconductor Manufacturing Company (ESMC), will be the EU’s first Fin-FET capable pure-play foundry, positioning TMSC as a leader in the industry.
In the second quarter of 2024, the company’s revenue increased by 13.6% sequentially, led by growing demand for its nanometer technologies. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects revenue from AI chips to increase at a compound annual growth rate (CAGR) of 50% by 2027. For the year ended 2024, TSMC projects a 20% growth in revenue, again driven by the demand for chips used in artificial intelligence.
Despite macro headwinds, the company projects strong growth for the stock in the coming years thanks to the growing demand for AI. Analysts are bullish on the stock and their 1-year median price target of $209 points to a 12% upside from current levels.
Diamond Hill Capital stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“On an individual holdings’ basis, top contributors to return in Q2 included our long positions in Alphabet, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Microsoft. Semiconductor manufacturer Taiwan Semiconductor’s (TSMC) fundamentals remain solid as demand for its chips continues growing — particularly as the machine learning and cloud computing trends gain more traction.”
Overall, TSM ranks 4th among the 10 stocks to buy and hold for the next decade. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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.
