Title: Two Moguls Snap Up My Favorite Artificial Intelligence (AI) Equity
Investing in the moves of wealthy hedge fund managers can be a smart strategy, as these individuals don't reach their status without making astute decisions. Funds with assets over $100 million are required to disclose their end-of-quarter holdings to the Securities and Exchange Commission (SEC), and these disclosures become publicly accessible after 45 days.
One of the stocks that two well-respected billionaire investors, Chase Coleman of Tiger Global Management and Steve Cohen of Point72, bought in the third quarter was Taiwan Semiconductor Manufacturing Company Limited (TSMC). This company, often referred to as TSMC, is a popular choice for those looking to invest in the artifical intelligence (AI) arms race.
The Allure of 2nm Chip Technology
TSMC is a world leader in third-party chip manufacturing, producing cutting-edge chips for key players in the digital technology industry. Apple and Nvidia are noteworthy clients, but the company has a wide range of high-profile clients.
TSMC's success in its field is largely due to its relentless pursuit of innovation. The company continually pushes the boundaries of chip technology by developing more tightly packed transistors and elements on its chips, resulting in more powerful, faster, and energy-efficient devices.
Currently, the cutting-edge in chip technology is the 3-nanometer (3nm) process node. Despite the "nm" being a misnomer, a 3nm chip is a significant technological achievement, with only a few companies possessing the capability to produce one.
The demand for 3nm chips has been impressive, accounting for 6% of TSMC's revenue in Q3 and 20% in its most recently reported quarter. Even more encouraging is TSMC's plans to start producing 2nm chips for clients in 2025, with a full ramp-up scheduled for 2026. The revenue contribution of this process node is expected to surpass that of previous generations due to its impressive energy-efficiency improvements and efficiency in GPU manufacturing.
The Investment Case for TSMC
TSMC's strong financials support its investment case. In the third quarter of 2024, the company reported revenue growth of 39% in New Taiwan dollars, translating to 36% growth in US dollars. Earnings per share (EPS) grew a notable 54% in NT dollars. The company's growth is expected to continue, with analysts projecting revenue increases of 25% and EPS growth of 26% in 2025.
The stock is trading for just 20 times 2025 earnings, making it a compelling investment opportunity. With TSMC's chip manufacturing technology second to none and its growth rates backing up its potential, this company is an excellent choice for investing in AI's future. The high-profile positions that multiple billionaires have in the stock provide further validation of this investment thesis.
Enrichment Insights
TSMC's strong outlook and growth prospects are driven by the increasing demand for AI chips and advancements in their 2nm chip technology. Key factors include:
- AI Demand and Revenue Growth: TSM's AI-related revenue has seen significant growth, with revenue exceeding Wall Street's consensus expectations in Q4 2024. Citibank analysts project that TSM's AI revenue will grow substantially in 2025, leading to NVIDIA surpassing Apple as TSM's largest customer.
- 2nm Chip Technology: TSM has completed limited risk production of around 5,000 wafers using its 2nm process and plans to roll out 2nm production at the Baoshan and Kaohsiung fabs. The 2nm process delivers a 24% to 35% energy-efficiency improvement at the same voltage or improved performance by 15% with a 1.15 times higher transistor density than the 3nm generation.
- Capacity Expansion and Investment: TSM plans to spend around $38 billion to $42 billion on technology and capacity upgrades in 2025, exceeding estimations, to meet the increasing demand for AI chips and other advanced semiconductor technologies.
- Market Confidence and Outlook: Despite potential margin pressure due to overseas expansion costs and higher electricity prices, TSM's strong fundamentals and technological edge are expected to drive continued growth, with analysts generally being bullish on the company's performance.
Given the text, here are two sentences that contain the words 'finance', 'money', and 'investing':
Investing in TSMC, a company with strong financials and high-profile billionaire investors, can be a smart decision for those interested in finance and money, given its potential in the AI and chip technology industries.
As the revenue contribution from TSMC's 2nm chip technology is expected to surpass previous generations due to its energy-efficiency improvements and efficiency in GPU manufacturing, this investment in finance and technology could yield substantial returns for those who put their money into TSMC.
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