We recently compiled a list of Jim Cramer’s 10 hottest stocks, and in this article we’ll take a look at how Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands in relation to the rest of Jim Cramer’s stocks.
On a recent episode of Mad Money, Jim Cramer talked about some of Wall Street’s biggest oversights this earnings season, especially on a day when the Dow fell 141 points and the Nasdaq rose 0.2%. Cramer cited misleading stories about the impact of GLP-1 drugs on food and beverage companies, reluctance to cut prices post-pandemic, skepticism about AI investments, and
Intel continues to dominate the technology world.
Cramer argues that if companies were more honest about their changing circumstances, they would appear more credible and their stock prices could rise, but by concealing important details, they could confuse investors and make them more likely to make wrong decisions.
“It would make things a lot easier for everyone if companies admitted their changed situation, but who wants to admit they’re wrong? Companies get credit and stock prices rise, only to suffer as investors try to figure out what’s actually going on and assume the worst instead of the best,” Cramer said.
Kramer emphasized how easy it is to be misled in an age of misinformation and stressed the need to recognize these gaps. According to Kramer, despite the fact that approximately 20 million Americans are reported to be using GLP-1 weight loss and diabetes drugs, food and beverage companies refuse to acknowledge any adverse effects of these drugs. They don’t even hint at them. Kramer argues that their denial of the effectiveness of GLP-1 drugs is a complete lie.
“We know that when you take GLP-1, it suppresses your appetite, so you eat a lot less and eat less snack foods. … These drugs are incredibly powerful. It would be crazy for them not to hurt snack food companies.”
Commenting on price increases, Cramer said most airlines have not seen the need to lower prices despite the massive hikes that have occurred during the pandemic. He noted that airlines with consistently underperforming performance have refused to reduce fares and are acting as if the hikes never happened.
“There are countless airlines out there that are underperforming. They simply won’t lower their prices and act as if they never raised them in the first place.”
The same goes for hotels and entertainment venues, which have significantly increased prices during the pandemic and are resisting lowering them despite lower demand projections. Cramer also noted that many restaurants either insist that price increases haven’t affected sales or refuse to acknowledge the need to lower prices.
The story continues
“We’ve increased our prices significantly during the pandemic, and we’re not going to hold back on increasing prices much, even though expectations are now way down.”
In discussing AI, Cramer strongly disagrees with Wall Street’s argument that investing in AI is a waste of money. He points out that many believe that the big companies investing heavily in AI-related video chips aren’t seeing significant benefits and are simply investing to keep up with their competitors (see “The 33 Most Important AI Companies to Watch”).
“We keep hearing that big companies that are spending big bucks on video chips for AI aren’t getting any meaningful return on their investment. They’re only doing it to stop their competitors from getting an advantage. We keep hearing it. It’s ridiculous!”
Cramer also disputed the common perception that INTC is still a leader in its field. The company is poised to make a big comeback, especially in data centers, and denied claims that it has the chips to challenge its competitors’ dominance. Cramer noted that the company’s financials tell a different story, citing its decision to cut its dividend last year and suspend it for the rest of the year. Cramer said these actions are not indicative of dominance, and warned that despite what the company may claim, it is not the same semiconductor company it once was.
“We hear a lot about Intel making a huge comeback in the data center where they will overtake everyone else. They have an Nvidia killer there called GE-3. Intel will use their chips to take your money and further their dominance. It’s a pipe dream! Have you seen Intel’s balance sheet? Can you read it? Do you believe this is a company that cut its dividend last year and then suspended what’s left this year to establish dominance?! This is not the Intel of old, although we would like it to be. Despite Intel’s protests, I do not want to be an Intel partner.”
A close-up of the complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of hedge fund investors: 135
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), the world’s leading semiconductor foundry, commands more than 50% of the global market share and is a key supplier to major technology companies.
Apple Inc.
(NASDAQ:AAPL),
NVIDIA Corporation
(NASDAQ:NVDA), and
Advanced Micro Devices
(NASDAQ:AMD). Cutting-edge technologies, including 5nm and 3nm chips, keep Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) ahead of its competitors and ensure steady demand for its products.
To manage geopolitical risks and meet growing global demand, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is expanding its manufacturing operations outside of Taiwan with significant investments in the United States and Japan. This strategic move is reflected in Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) strong financial performance, with recent revenue of $20.82 billion and earnings per share of $1.48, both beating expectations.
When asked if Taiwan Semiconductor Manufacturing Co. (NYSE:TSM) is a good buy for the long term, Jim Cramer answered in the affirmative, calling it a solid investment despite ongoing concerns about Taiwan.
“I think it’s OK. I think there will always be concerns about Taiwan. If you look back at what Lisa Su said, she wasn’t saying not to worry because no one would say that. She said this time it won’t be an issue, and I agree with her,” Kramer said.
In its Q2 2024 investor letter, Cooper Investors Global Equity Fund said the following about Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM):
“As expected, the portfolio’s best near-term performance reflects this pattern, narrowed down to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and Alphabet, which have the most obvious exposure to the AI story. While the portfolio has long-standing semiconductor holdings, we have maintained diversification and have underweighted the group from an active risk perspective, dampening its relative performance over the past six months. The portfolio is currently positioned to take advantage of the value latency seen in smaller companies, and quarterly performance has been more aligned with these factors.”
While this positioning will be painful in the near term, we see significant intrinsic value in our portfolio. We also know that there is significant risk and uncertainty in the AI theme that is not reflected in the value latency offered by many of the stocks that have surged.
Going back to AI, currently about 10% of our portfolio capital is invested in TSMC and Alphabet. We believe there is a great opportunity for TSMC to extract more value from the profit pool that their downstream customers currently enjoy.”
Overall, TSM ranks #5 on Jim Cramer’s list of stock picks. While we acknowledge TSM’s potential as an investment, we believe that less-obvious AI stocks have a good chance of delivering higher returns in a shorter time frame. If you’re looking for AI stocks that are more promising than TSM but still trade for less than 5x TSM’s earnings, check out our report on the cheapest AI stocks.
Read next: Analyst sees new $25 billion ‘opportunity’ in NVIDIA, Jim Cramer recommended these 10 stocks in June.
Disclosures: None. This article was originally published on Insider Monkey.
