We recently compiled a list of stocks that we believe have a bright future over the long term, and in this article we’ll take a look at where Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) ranks among these stocks with a promising long term future.
There is a good chance of a soft landing
With the Federal Reserve set to begin cutting interest rates for the first time in over four years, investors are unsure of what to expect in the financial markets going forward. On September 17, Steven Juneau, a US economist at Bank of America, appeared on Yahoo Finance in an interview to discuss the impact of an unexpected increase in consumer spending on the economy.
Junod reiterated that economic data is very volatile and that the retail data released this morning will not affect the Fed’s rate cut decision tomorrow, and he expects the Fed to maintain the 25 basis point cut. As for consumer behavior, the economy is finally moving toward normalization and consumers’ basket of goods reflects that. These signs, along with increasing labor demand and a stable investment outlook, suggest that a hard landing is very unlikely.
Investment Outlook During Rate Cuts
On September 17, Eric Friedman, Chief Investment Officer of the US Bank Asset Management Group, appeared in an interview with Yahoo Finance to talk about interest rate cuts and investors’ views on investments. Friedman said that since the rate cut depends on the course of the Fed, it may be impossible to make an accurate prediction at this point.
Friedman spoke from an individual perspective about investing, suggesting that investors need to get out of the front end of the yield curve, and cited consumer discretionary goods, parts of the energy sector, and technology as sectors that currently offer value to investors, especially as investment in this sector is projected to grow rapidly through 2025.
Friedman then discussed what companies should do to attract investors. He emphasized the need for financial strength and suggested that companies should consider buying back shares or increasing dividends. The perfect mix of stocks, according to Friedman, includes companies that are returning cash and experiencing strong organic growth.
The future of the economy and financial markets is unpredictable. However, some stocks have the potential to impact the markets not only now but also in the future. Let’s take a look at the stocks with the best long-term prospects.
Our Methodology
To select the top 10 stocks with the strongest long-term prospects, we looked at growth stocks in the AI, cloud, cybersecurity, biotechnology, electric vehicles and renewable energy industries. We then ranked the stocks that were the largest holdings by hedge funds as of the second quarter of 2024.
The story continues
Why are we interested in hedge fund concentrated stocks? The reason is simple: our research shows that you can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points (more details here).
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of hedge fund holders: 156
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) ranks second on our list of stocks with the most potential for the long term. TSMC is a semiconductor manufacturing and design company. The company is a major manufacturing partner that makes chips for technology giants such as Nvidia and AMD.
In the second quarter of 2024, the company’s revenue grew 13.6% sequentially, driven by rising demand for nanometer technology. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects AI chip revenue to grow at a compound annual growth rate (CAGR) of 50% through 2027. In the year leading up to 2024, TSMC expects revenue to grow 20%, driven by demand for chips used in artificial intelligence.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) will be successful as long as technology remains a trend. Success will not come without dedicated strategic investments in technology, and the company is doing just that. TMSC expects its capital expenditures budget to be between $30 billion and $32 billion in 2024. Of this, 70% to 80% of the budget will be allocated to advanced process technologies, approximately 20% will be directed towards specialty technologies, and 10% will be dedicated to advanced packaging, testing, and volume production.
Despite domestic macroeconomic headwinds and geopolitical turmoil, analysts remain bullish on the stock, with a median one-year price target of $209, implying a 25% upside from current levels. Overall, TSM was held by 156 hedge funds with total holdings of $21.28 billion as of the end of the second quarter of 2024. As of June 30, Fisher Asset Management was the largest shareholder with holdings worth $4.94 billion.
In its Q2 2024 investor letter, Wedgwood Partners said the following about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM):
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was the largest contributor to the quarter’s performance. The company’s revenue growth continued to accelerate due to the deployment of its most advanced N3 manufacturing node and rising demand for chips used in artificial intelligence applications. Unlike traditional CPUs, the company has blue-chip customers and a monopoly market share in the production of AI chips such as GPUs. The company’s aggressive capital investments several years ago should continue to pay off as fabless chip designers proliferate and require manufacturing partners to take on the capital investment risk. The company’s continued aggressive investment and deployment in semiconductor manufacturing equipment is not a competitive advantage that is easily replicated.”
Overall, TSM ranks second on our list of most promising future stocks in the long term. While we acknowledge the potential of TSM as an investment, we believe AI stocks have a better chance of delivering higher returns in a shorter time frame. If you are 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: The $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and NVIDIA Has “Become a Wasteland” According to Jim Cramer.
Disclosures: None. This article originally appeared on Insider Monkey.
