We recently compiled a list of 18 trending AI stocks based on the latest analyst ratings and news, and in this article we’ll take a look at how Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands relative to other trending AI stocks.
Growth investors have flocked to artificial intelligence (AI) stocks in recent months as a variety of factors, including rapid technological advancements, a surge in investment, and widespread adoption across sectors, have increased interest in AI businesses. Several key indicators illustrate this phenomenon: The global AI market is projected to be valued at approximately $142.3 billion in 2023 and grow at a compound annual growth rate of more than 36% to reach nearly $2 trillion by 2030. In 2024 alone, the AI market is expected to expand by approximately 40%, far outpacing the overall technology sector and the global economy, which are projected to grow at a more modest 2.7%.
For more on these trends, check out “The 33 Most Important AI Companies to Watch” and “20 Industrial Stocks Already Riding the AI Wave.”
This explosive growth is driven by the increasing integration of AI technologies across industries, including healthcare, finance, retail, and manufacturing. AI investments are soaring as companies realize the potential of AI to revolutionize business operations and bring significant benefits. According to PwC, AI could contribute up to $15.7 trillion to the global economy by 2030, with North America and China accounting for approximately 70% of this value. By 2024, enterprise investment in AI is expected to exceed $500 billion as companies seek to improve efficiency, reduce costs, and innovate their product offerings.
Industry experts are becoming increasingly bullish on the long-term prospects for AI stocks. According to Gartner research, 80% of executives believe AI will be a key business driver by 2025, and 75% are already piloting or implementing AI solutions. McKinsey estimates that AI could add up to $6.1 trillion in value annually across industries, primarily through automation and optimization. Growing confidence in AI capabilities is reflected in the stock market, with AI-focused companies consistently outperforming their peers. For example, stock prices of AI-driven companies have soared by more than 50% in 2023 alone, a trend expected to continue as demand for AI solutions grows.
For more on these developments, see “Billionaire Stan Druckenmiller Invests in AI Infrastructure, Tobacco, Industrial Stocks” and “10 Tech Stocks to Watch Amid Market Volatility, Bernstein Analysts Say.”
These AI-focused companies are also investing in AI startups in an effort to diversify their business. NVIDIA, Apple, and Microsoft are all reportedly considering huge investments in OpenAI, a California-based AI company that gained fame for launching ChatGPT, in late 2022. If the rumors are true, the latest funding round would value the startup at $100 billion. To add to that, that’s more than the combined GDP of 110 countries, the highest VC-backed company in the U.S. since Facebook’s IPO, and the most valuable private company in the U.S. after Musk-owned SpaceX.
This high valuation is also in line with an emerging trend in the startup world. According to a study of the sector by Coatue Management, by June 2024, the venture capital world had a total of 200 AI-related deals, compared to just 7,000 for non-AI companies. The average valuation of these deals for AI startups was around $1 billion. On the non-AI side, this value was just $200 million. The average funding round for AI companies was over $120 million, compared to around $20 million for non-AI companies. This figure highlights that AI companies, on average, have five times the valuation and raise six times as much money as non-AI companies.
Our Methodology
In this article, we selected AI stocks based on the latest news and analyst ratings. These stocks are also popular among hedge funds. Why are we interested in stocks that hedge funds are flooding? The reason is simple: our research shows that you can outperform the market by mimicking the top picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks every quarter and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
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 holders: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) manufactures and sells integrated circuits and semiconductors. The company enjoys a competitive advantage in the chip space through technological superiority and economies of scale. For example, the company plans capital expenditures of approximately $32 billion in 2024, which is approximately $5 billion more than TSM’s main rival, Intel, spent on capital expenditures in 2023. The capital expenditures will be used to increase the company’s technological and manufacturing advantages in the chip industry as AI demand grows. The company derives the majority of its revenue from the sale of advanced technology chips. This process, which TSM has a virtual monopoly on, produces chips that are 7 nanometers or smaller.
Taiwan Semiconductor Manufacturing Co., Ltd. (NYSE:TSM) is one of the favorite AI stocks among Wall Street analysts. Bank of America recently raised its price target on TSM to NT$1,200 from NT$1,160 and maintained a buy rating on the company’s shares. This highlights a 3-5% increase in the company’s 2024-26 profit forecast, reflecting stronger financial results, improved third-quarter profit outlook, and tighter-than-expected supply of CoWoS/N3/N5 through 2026.
Overall, TSM ranks 13th on our list of trending AI stocks. While we acknowledge the potential of TSM as an investment, we believe some AI stocks have the potential to deliver higher returns in a shorter time frame. If you’re looking for AI stocks that are more promising than TSM but still trade at less than 5x TSM’s share price, check out our report on the cheapest AI stocks.
Read next: Michael Burry is selling these stocks and Jim Cramer is recommending these stocks.
Disclosures: None. This article was originally published on Insider Monkey.
