Billionaires Bet on My Favorite AI Stock: Taiwan Semiconductor Manufacturing

Tracking the investment choices of billionaire hedge fund managers can be a smart strategy. These investors have achieved their wealth by making informed and strategic decisions in the market.

For hedge funds with over $100 million in assets, there is a requirement to disclose their holdings at the end of each quarter to the Securities and Exchange Commission (SEC) within 45 days. This disclosure of financial positions offers valuable insights into what leading Wall Street professionals are buying, although it comes with a slight delay.

Recently, two billionaires purchased shares of Taiwan Semiconductor Manufacturing (TSM), a stock that I personally favor in the growing artificial intelligence (AI) sector. Chase Coleman of Tiger Global Management and Steve Cohen from Point72 are among those who have increased their stakes in TSMC during the third quarter, and it's likely that other investors jumped on board as well.

Innovative Chip Technology Driving Future Growth

Taiwan Semiconductor is recognized as the world’s largest independent chip foundry, creating advanced chips for a wide range of technology companies. Noteworthy clients include Apple and Nvidia, among many others.

The company's prominence in the semiconductor field stems from its commitment to continuous innovation. In chip manufacturing, advancements are marked by decreasing transistor sizes, referred to as "process nodes." By packing more components into smaller spaces, TSMC can produce more powerful, faster, and energy-efficient chips.

Currently, TSMC is implementing the cutting-edge 3-nanometer (3nm) process node for its chips. Though the “nm” does not directly correspond to specific sizes anymore, it signifies a significant technological milestone that only a handful of companies can achieve. The interest surrounding these 3nm chips has been substantial, as they contributed to 20% of TSMC's revenue in the last quarter, growing from just 6% earlier in the year.

Looking ahead, TSMC is poised to start manufacturing 2nm chips in 2025, with full production expected in 2026. Early demand for 2nm technology is exceeding that of the previous 3nm and 5nm launches, signaling its potential for robust revenue contributions.

The efficiency of 2nm chips is noteworthy, offering a 25% to 30% energy-saving advantage while maintaining speeds comparable to 3nm chips. This efficiency will likely attract interest from GPU manufacturers like Nvidia, as lower power consumption reduces production costs for AI models.

Attractive Valuation Supported by Growth Potential

There’s a clear investment rationale for TSMC based on its business model, but what's the financial picture? In the third quarter, TSMC reported impressive growth of 39% in New Taiwan dollars, translating to around 36% in U.S. dollars. The company also saw its earnings per share (EPS) soar by 54% in NT dollars. Analysts forecast that TSMC’s revenue could climb by 25% and EPS by 26% in 2025, driven by rising AI demand and returns from investments in new chip technologies.

The stock trades at a reasonable price of about 20 times its projected earnings for 2025, a price that seems justified given its strong growth prospects. Taiwan Semiconductor's advanced chip manufacturing capabilities make it one of the top investment opportunities in the AI sector, and the significant holdings by multiple billionaires only reinforce this investment thesis.

Disclaimer: The author holds positions in Taiwan Semiconductor Manufacturing. The discussion includes companies such as Apple, Nvidia, and Taiwan Semiconductor Manufacturing.

investment, billionaires, technology