Watching the moves of billionaire hedge fund managers is a wise investment strategy because these investors didn’t get to their status without making some smart decisions.
Funds that have more than $100 million in assets must disclose their end-of-quarter holdings to the Securities and Exchange Commission (SEC) within 45 days after that quarter ends, and those disclosures are then made available to the public. This gives us an idea of what sorts of moves these Wall Street pros are making, albeit in a delayed manner.
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One stock that two billionaires I follow both bought in the third quarter is Taiwan Semiconductor Manufacturing (NYSE: TSM), which is one of my favorite ways to invest in the artificial intelligence (AI) arms race. Chase Coleman at Tiger Global Management and Steve Cohen at Point72 made the move, although others no doubt scooped up TSMC (as it’s commonly known) in the quarter as well.
Taiwan Semiconductor is the world’s largest third-party chip foundry, and produces cutting-edge chips for nearly every company that’s at the forefront of digital technology. Apple and Nvidia are notable clients, but there are many others, too.
Part of the reason TSMC has risen to the top in its part of the chip industry is its culture of continuous innovation. In the world of chips, advances come with new and ever-smaller “process nodes” — defined by the ability of the manufacturers to reduce the size of transistors and other elements on the chips, as well as the spaces between them. The more tightly TSMC and its peers can pack these elements into a chip, the more powerful, faster, and energy-efficient the chip will be.
The cutting-edge generation in chip technology today is the 3-nanometer (3nm) process node — although that “nm” doesn’t actually refer to a specific component size or gap anymore. In recent years, node names have evolved into marketing terms, and various manufacturers use their own standards to define precisely what they mean in terms of upgraded chip density. Nonetheless, a 3nm chip is an impressive technological achievement that only a few companies can produce.
Demand for 3nm chips has been significant. They first contributed to TSMC’s revenue during Q3 2023, accounting for just 6% of its top line. In the most recently reported quarter, 3nm chips accounted for 20% of revenue — only 5nm chips contributed a higher share.
However, TSMC isn’t stopping there. It’s preparing to start producing 2nm chips for customers in 2025, with a full ramp-up in 2026. The revenue contribution of this process node will likely be greater than that of previous generations, as the early demand for this technology from its chip-designing clients is already exceeding that of 3nm and 5nm launches.
This is because of the efficient nature of the 2nm technology, as it offers a 25% to 30% energy-efficiency improvement at the same speed as 3nm chips. Considering that 3nm chips already provide impressive performance, this process node should be popular with GPU makers (like Nvidia), in that it will allow them to offer products with less power consumption — and electricity is a massive input cost for creating AI models.
There’s a clear investment case for TSMC on the business side, but do the financials back it up?
In Q3, Taiwan Semiconductor posted strong growth of 39% in New Taiwan (NT) dollars, which converted to 36% in U.S. dollars. Earnings per share (EPS) rose 54% in NT dollars. That wasn’t an anomaly; Wall Street analysts project its revenue will rise by 25% and EPS will increase by 26% in 2025 thanks to AI demand and as its investments in new chip technology start to pay off.
The stock trades for just 20 times 2025 earnings, which I think is a no-brainer price to pay. Taiwan Semiconductor’s chip manufacturing technology is second to none, and its growth rates back that up. The company is one of the best ways to invest in AI, and the high-conviction positions that multiple billionaires have in the stock validate that investment thesis.
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Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
