We recently compiled a list of the 10 Best Semiconductor Stocks to Buy for the AI Boom. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other semiconductor stocks.
More than two years have passed since the proliferation of the disruptive Artificial Intelligence (AI) megatrend, symbolically marked by the launch of OpenAI’s revolutionary product – ChatGPT. Since then, the AI revolution has accelerated rapidly, with 2023 and 2024 seeing a surge in demand for advanced AI applications across industries. This transformation has driven companies to increasingly rely on robust data centers that can support the computational power required by the intelligent algorithms.
In tandem with the rise of AI, the data center sector has experienced substantial growth. The need for larger, more efficient, and scalable data storage and processing capabilities has created a boom in infrastructure investments. Data centers, which house the powerful servers needed for AI workloads, have become critical enablers of this technology’s expansion. This increase in demand for data center capacity is a key factor that has propelled semiconductor stocks, as these centers rely heavily on cutting-edge semiconductors to deliver the speed, efficiency, and power necessary to process vast amounts of data in real time.
Our Methodology
We shortlisted 35 semiconductor stocks using the holdings of iShares’ Semiconductor ETF. Then we merged these stocks with Insider Monkey’s proprietary hedge fund holdings database and identified the 10 most popular hedge fund semiconductor stocks. 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 Mfg. Co. Ltd. (NYSE:TSM) is the world’s largest dedicated chip foundry, commanding over 60% of the market. Founded in 1987, TSMC leverages its scale and advanced technology to maintain strong operating margins in the competitive foundry space. The shift toward the fabless business model has further boosted TSMC, as major customers like Apple, AMD, and Nvidia rely on its cutting-edge process technologies to manufacture their semiconductor designs.
The company experienced an explosive 2024, with its shares up 109% in the last year. TSM remains integral to the AI revolution, leveraging its cutting-edge 3nm and 5nm technologies to drive innovation for key clients, including Nvidia and Apple. In Q4, High-Performance Computing (HPC), encompassing AI and 5G applications, represented 53% of TSM’s revenue, up from 43% the prior year, fueled by rising AI-driven demand. CEO C.C. Wei expressed confidence in managing geopolitical challenges, such as US export controls on AI chips, highlighting the company’s commitment to maintaining open communication with current and future administrations.
Despite geopolitical risks, TSM continues to invest in advanced manufacturing, which contributed 74% of wafer revenue in Q4. With plans to scale 3nm production and prepare for its 2nm technology, the company is positioned to preserve its competitive edge. These advancements are essential for sustaining margins and meeting the demands of AI applications, including Nvidia’s GPUs and Apple’s custom processors.
Overall TSM ranks 2nd on our list of the best semiconductor stocks to buy for the AI boom. 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 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.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
