Billionaire Chase Coleman Expands Investment in TSMC Amid AI Revenue Surge

As an investor, monitoring the strategies of billionaire hedge fund managers can provide valuable insights. This attention can lead to the discovery of new investment opportunities or reinforce existing ones.

Recently, billionaire Chase Coleman, along with his team at Tiger Global Management, increased their holdings in a prominent player in the artificial intelligence (AI) sector: Taiwan Semiconductor Manufacturing (TSMC).

In the third quarter, Tiger Global Management boosted its stake in TSMC by nearly 20%, now owning 3.63 million shares, which represents 2.8% of its total portfolio. This stake is valued at approximately $671 million. The ongoing investment from the hedge fund indicates that this might be a good time for other investors to consider buying into what some view as a pricey stock.

With the fourth quarter underway, it raises the question: is it still a smart decision to invest in TSMC? Let’s explore further.

TSMC's Industry Leadership

TSMC stands as the largest semiconductor chip manufacturer in the world, providing fabrication services for major technology firms and chip designers. Tech giants, such as Apple, Qualcomm, Advanced Micro Devices, and Nvidia, rely on TSMC to produce their chips, as they lack the facilities for large-scale production.

This outsourcing places TSMC in a strong position, as even competitors such as Intel turn to TSMC for their manufacturing needs.

TSMC's constant pursuit of technological advancements in chip manufacturing has secured its status as a leader in the industry. The company foresees significant growth from its AI-related production efforts. Forecasts from TSMC's management indicated back in Q2 2023 that AI-related revenue would experience a compound annual growth rate (CAGR) of 50% over the next five years, ultimately representing a low-teens percentage of total revenue. Recent updates suggest that these predictions might be conservative, with management recently stating that AI-related revenue is expected to triple this year, potentially accounting for a mid-teens percentage of revenue in 2024.

Clearly, TSMC's growth trajectory remains strong.

Future Growth Driven by New Chip Technology

TSMC is continuously pushing the boundaries in chip manufacturing technology. The company’s 3-nanometer (nm) chips are currently among the best in the market, and TSMC is already preparing to produce 2nm chips, with production expected to ramp up in 2025 and reach full capacity by 2026.

The demand for these newer chips has been robust, exceeding orders for the previous generations of 3nm and 5nm chips, as they promise greater efficiency. A 2nm chip can achieve the same computing power as a 3nm chip while using 25% to 30% less energy. The reduction in energy consumption is crucial for data centers, where operational costs can be significantly impacted by energy prices. Thus, the enhanced efficiency of these new chips can lead to substantial savings.

As a result of these advancements, TSMC is likely to see vigorous revenue growth in the foreseeable future. Management has indicated long-term revenue growth prospects of 15% to 20% CAGR over the next few years, which could position TSMC as a stock that outperforms the market.

Despite the strong growth forecasts, TSMC shares appear reasonably priced, trading at 26 times forward earnings. This valuation is competitive compared to the broader market, represented by the S&P 500, which trades at 23.5 times forward earnings.

Investors might consider this slight premium worthwhile for a company expected to grow revenues at a vigorous pace and that has substantial growth drivers on the horizon.

With TSMC's stock having risen nearly 87% so far in 2024, the decision of a billionaire investor to increase their stake in the company is encouraging for those who are already invested or considering investing in TSMC. This company stands out as one of the top stocks for 2025 and presents a compelling opportunity for investors at this time.

Note: The author holds positions in Taiwan Semiconductor Manufacturing and the analysis presented here is for informational purposes only. Investment decisions should be based on individual research and considerations.

investment, TSMC, AI