We recently compiled a list of the 7 unstoppable artificial intelligence (AI) stocks to buy right now. In this article, we’ll take a look at how Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands up against other unstoppable AI stocks.
Will predictive AI replace GenAI?
Generative AI is taking the world by storm. This groundbreaking technology can create new content, such as text, images, and even music, based on patterns it learns from existing data. The impact of this advancement in AI on business is significant, with companies using AI to automate tasks, increase efficiency, and create innovative solutions through personalized content.
Although there are still challenges ahead, GenAI’s potential is undeniable. AI companies are rolling out their GenAI platform to integrate large-scale language models and make them accessible to the general public with just a click. We previously covered this in our article on the top 10 small AI stocks according to short sellers. Here is an excerpt from that article:
“Large-scale language models are a type of AI that use deep learning techniques and huge datasets to understand, generate, and predict human language. All of this is trained through statistical relationships from vast amounts of text. The reason large-scale language models have become popular in a short space of time is because they can be fine-tuned for specific tasks or to better understand language through specific prompts. LLMs such as Gemini and ChatGPT-4 are multimodal AI platforms that can process and generate multiple types of data simultaneously, including text, voice, and visual input.”
GenAI has recently gained popularity due to advancements that have resulted in models like ChatGPT-4, but predictive AI (or enterprise machine learning) has been prevalent in the business world for much longer. It is widely used for tasks such as fraud detection, customer churn prediction, and market analysis. While GenAI excels at creating new content, predictive AI is better suited for tasks such as forecasting future trends or forecasting outcomes based on historical data.
Mature organizations with streamlined processes are using predictive AI to help deliver higher revenue and improve customer experience. Forbes reports that UPS saves $35 million annually by optimizing package delivery planning. Mid-sized banks can save $16 million annually by predicting fraudulent transactions. Marketing campaigns can increase profits five times by predicting consumer behavior.
Spending on GenAI was less than 7% of that on predictive AI last year. However, predictive AI’s potential remains largely untapped due to operational challenges. While predictive AI can operate autonomously, GenAI often requires human oversight. It is also cheaper and has a smaller footprint than the latter. According to a report published by market.us, the global predictive AI market is expected to grow from $14.9 billion in 2023 to $108 billion in 2033, at a CAGR of 21.9% from 2024 to 2033.
The story continues
Google AI’s investment of $100 billion in responsible AI initiatives focused on areas such as healthcare, climate change, and cybersecurity demonstrates the importance and potential of this sector. Similarly, SoftBank’s $3.5 billion fund for predictive AI startups and Sequoia Capital’s significant investment in PreCog are examples of this. By 2023, the large enterprise segment captured over 65% share of the predictive AI market.
Predictive AI is used at scale to learn from data and predict outcomes and actions to guide millions of daily operational decisions. Use cases like these prove that artificial intelligence is, directly or indirectly, becoming an integral part of major industries around the world.
Methodology
To compile this list, we combed through ETFs, online rankings, and internet lists to come up with a list of 15 AI stocks. We then selected the seven stocks that are the most popular among elite hedge funds and have risen at least 30% year-to-date. These stocks are ranked in ascending order of year-to-date performance as of September 4th.
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
Performance as of September 4th (YTD): 54.32%
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chipmaker, designs microchips used in industries including electronics, healthcare and communications.
The company accounts for 60% of all chips and 90% of the advanced chip manufacturing industry. It is currently held by 156 hedge funds, with the largest holding being Fisher Asset Management, valued at $4,937,464,673.
The company’s 2024 capital budget is now estimated at $30 billion to $32 billion, up from a previous estimate of $28 billion to $32 billion. The increased investment reflects strong demand for AI-related technologies. Most of the capital will be allocated to advanced chip manufacturing processes, with a smaller portion devoted to specialized technologies and advanced packaging.
Revenues for the second quarter of 2024 were $20.58 billion, representing 33.30% growth year over year. Earnings per share for the period were $1.48, up from $1.38 in the first quarter. This growth was driven by strong demand for its industry-leading 3, 7, and 5 nanometer technologies.
The company’s leadership in advanced processes will drive customer growth, stable production, and cost savings. Management expects the overall semiconductor market (excluding memory) to grow 10% for the full year 2024. This outlook makes the company one of the best AI stocks.
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 6th on our list of unstoppable AI stocks to buy. While we acknowledge the growth potential of TSM as an investment, we believe AI stocks have greater potential to deliver 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.
