We recently compiled a list of the 10 best AI stocks to buy according to Reddit, and in this article we’ll take a look at how Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands relative to other AI stocks.
As artificial intelligence becomes more and more prevalent in the current global landscape, new patterns regarding its research and development strategies are also emerging. Traditionally, academia has focused on basic research and education, while industry has concentrated on applied research and commercialization. However, in recent years, the dominance of the commercial sector in AI investment and research has raised concerns about power relations. The shift of researchers from academia to industry has also raised questions.
Advanced AI systems require increasingly large amounts of data, computing power, and financial resources that industry has in greater abundance than academia or non-profits, so AI research that was the domain of academia in the early 2000s is now being taken over by industry.
We recently covered this sector in another article, “7 Most Popular AI Penny Stocks Under $5,” an excerpt of which is below.
“A recent study from Stanford University found that enterprises are training AI models faster than academic institutions. In 2023, industry-trained AI approached 51 significant machine learning models, compared to just 15 for academic institutions. This trend continued in 2024 despite rising training costs. ChatGPT’s latest model, ChatGPT 4, cost approximately $80 million to train. Google’s Gemini Ultra cost approximately $191 million.”
According to a 2021 Stanford University report, the roles of academia and industry are becoming blurred because companies offer affordable cloud computing, open source libraries, and pre-trained models, motivating university researchers to pursue commercial applications of their research findings. Now, more and more industry papers are being presented at conferences, raising concerns that applied research will stifle long-term innovation or be biased toward corporate interests, while also accelerating solutions to real-world problems.
According to a paper published in Science in 2023, companies are now attracting 70% of AI PhD talent, up from just 20% 20 years ago. While the number of AI research faculty in academia has stagnated, industry employment has surged eight-fold since 2006. This is largely due to industry models being significantly larger (about 29 times) and exhibiting superior computing power.
In 2021, U.S. government agencies allocated a total of $1.5 billion to academic AI research, but Google spent the same amount on a single project in just one year.
The story continues
Today, 96% of the largest AI models are developed by industry, major benchmarks are also predominantly industry-driven, accounting for 91% of the total, and the number of papers with industry co-authorship has nearly doubled since 2000.
But another shift is expected as academic researchers are empowered to deploy their inventions in real-world environments – an example being the academically developed language-learning app Duolingo.
Fred Durand, a distinguished professor at MIT, believes academia can still be a driver of innovation. He explains that 25 years ago, the field of computer graphics in academia faced a similar resource imbalance, with industry producing more amazing visuals than academia could keep up with. But instead of trying to copy industry, academia took a different path, focusing on ideas like advanced lighting simulation, fluid dynamics, and machine learning for animation. These seemingly far-fetched ideas eventually became the foundation of modern rendering and graphics hardware.
Durand believes this approach holds valuable lessons for AI research, and he stresses the importance of academia pursuing unconventional approaches, sharing research findings openly, and maintaining a sense of excitement about the field.
But he acknowledges the challenges in academia and suggests potential solutions, such as increased government funding for academic research, sharing of research infrastructure, and strategies to keep top AI talent in academia. While industry seems to generally dominate AI, collaboration with academia could produce better results. Either way, AI will likely remain a hot topic for the foreseeable future.
Methodology
To compile this list, we combed through some of the most active subreddits and compiled a list of 15 AI stocks to buy. We then selected the 10 stocks that are the most popular among elite hedge funds and that analysts are bullish on. These stocks are ranked by the number of hedge funds that own the stocks as of Q2 2024.
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).
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) is the world’s largest contract chip manufacturer that makes chips for other companies. Heavy investments and decades of expertise in chip manufacturing give the company a strong competitive advantage.
The quality and standards the company meets are so high that major technology companies like Apple and NVIDIA hire it to manufacture their chips. The company currently accounts for 60% of the total chip manufacturing industry, and 90% of advanced chip manufacturing (including 3-nanometer chips).
Second quarter revenue was $20.58 billion, up 33.30% year over year. Growth was driven by strong demand for industry-leading 3-nanometer (15% of wafer revenue), 7-nanometer (35% of wafer revenue), and 5-nanometer (17% of wafer revenue) technologies, offset by continued smartphone seasonality.
Advanced technologies, defined as 7 nanometers and below, were the main contributor, accounting for 67% of wafer revenue. The company’s high performance computing platforms (HPC) accounted for 52% of total revenue in the second quarter for the first time.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) demonstrates leadership in advanced processes to drive customer growth, stable production and cost reduction. This strong position is why Reddit rates the company as one of the best AI stocks. As of June 30, the company’s shares were held by 156 hedge funds, with Fisher Asset Management’s largest holding at $4,937,464,673.
In its Q2 2024 investor letter, Ariel Global Fund said the following about Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM):
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also saw a strong price surge during the quarter following its annual shareholder meeting where management highlighted a robust earnings outlook. The boom in AI investment is driving strong demand for the semiconductor hardware that enables it. TSMC now holds a dominant position in related chip manufacturing and packaging. Additionally, while AI investment has been focused primarily on the data center market, Apple’s recent announcement of “Apple Intelligence” has kicked off the edge AI race. This could drive smartphone semiconductor growth more than expected. TSMC is Apple’s sole foundry partner, which bodes well for the future. Overall, we continue to view TSMC’s scale, technology, business model, customer service, and execution favorably. The fact that the company remains committed to returning capital to shareholders through both share repurchases and dividends is another positive.”
Overall, TSM ranks #4 on our list of best AI stocks to buy. While we acknowledge TSM’s potential as an investment, we believe AI stocks have a much higher chance of delivering high returns in the short term. 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: 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 was originally published on Insider Monkey.
