As an investor, monitoring the investment habits of billionaire hedge fund managers can serve two purposes. First, it can spark new investment ideas by drawing attention to companies you may not have considered. Second, it can help validate investment decisions that have already been made.
Chase Coleman and his team at Tiger Global Management recently raised a hedge fund’s stake in a popular way to invest in the artificial intelligence (AI) arms race: Taiwan Semiconductor Manufacturing Co., Ltd (NYSE: TSM)commonly referred to as TSMC.
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In the third quarter, Tiger Global Management increased its stake in the business by approximately 20% and now owns 3.63 million shares (2.8% of its total portfolio) worth $671 million. The fact that hedge funds are continuing to buy suggests there is still time for others to buy what is considered an expensive stock by some financial measures.
It’s Q4 now, so the question is whether there’s still time to buy TSMC. Let’s take a closer look and see if the answer shows itself.
TSMC is the world’s largest semiconductor chip manufacturer, and serves as a manufacturer for many of the world’s largest technology companies and chip designers. Almost every high-tech company uses chips manufactured by TSMC, including… Apple, Qualcomm, Advanced Micro Devices, and Nvidia. These companies do not maintain the facilities needed to mass-produce the chips they design, so they outsource this highly complex work (some manufacturing processes require several hundred precise steps to complete) to TSMC.
This puts TSMC in a great position, as even competitors like Intel They come to it to manufacture the chips that go into their products.
As TSMC constantly pushes the boundaries of chip technology and introduces new manufacturing innovations time after time, it has asserted itself as a top choice in this field. This can be seen in the growth of AI-related production efforts. It appeared that TSMC’s management could see the potential presented by AI all the way back in the second quarter of 2023 when TSMC’s management projected that AI-related revenues would grow at a 50% compound annual growth rate (CAGR) over the next five years and eventually represent a rate Low growth – teens percentage of total revenue. Management’s expectations may have underestimated the impact of AI on its revenues. In its recent third-quarter conference call, management noted that AI-related revenue is expected to triple for the year and should make up a moderate percentage of revenue in 2024.
Clearly, TSMC’s growth is far from over.
TSMC is always pushing the boundaries of what is possible with chip manufacturing technology. Its 3nm chips are among the best currently available, and it is already hard at work on producing its 2nm chips. Production will rise in 2025 and reach full scale in 2026, the administration said.
Pre-order is already strong, with management stating that it has exceeded demand for the previous two generations (3nm and 5nm chips). This is because these chips are being developed to be much more efficient than previous generations. When a 2nm chip is configured to produce the same level of computing power as a 3nm chip, it uses 25% to 30% less power. Given that power costs are a huge input for anyone running a massive data center, the cost savings in efficiency upgrades these chips can provide could pay for themselves quickly.
As a result, TSMC is likely to see strong revenue growth in the coming years. This supports management’s long-term guidance of 15% to 20%. total CAGR of revenue over the “next few years,” making it a stock that can easily beat the market.
Despite strong growth estimates over several years, TSMC stock still offers a reasonable valuation. TSMC stock It trades at 26 times forward earningswhich is not a bad price to pay considering that the broader market, as measured by Standard & Poor’s 500it trades at 23.5 times forward earnings.
Investors should feel good about paying such a small premium for a company that is expected to grow revenue at a rate of 15% to 20% and has big growth drivers on the horizon.
I already own TSMC stock, and seeing the billionaire adding more shares after the stock has already done well in 2024 (up ~87% so far in 2024) encourages me about the prospects for the company’s stock performance going forward. Taiwan semi One of my top stocks for 2025, I think now is a great time to buy more.
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Keith Drury He has positions in semiconductor manufacturing in Taiwan. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has Disclosure policy.
Billionaire Chase Coleman just bought a stock whose artificial intelligence (AI) revenue is expected to triple this year. Originally published by The Motley Fool