We recently published a list of 7 New Stock Picks in Brad Gerstner's Portfolio. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against other stock picks in Brad Gerstner's portfolio.
Gerstner Expects More M&As in New Term
Strategists and investors are confident that the new administration will fuel the state of mergers and acquisitions in the United States. It is no surprise that renowned investor Brad Gerstner, founder and CEO of Altimeter Capital, believes the same. On November 6, Gerstner appeared in an interview on CNBC Television where he shared his expectations of the stock market.
Gerstner shares that the Republicans have been particularly critical of big tech companies and their “bundling powers” that happen to “crowd out startups” and “stifle innovation and startups.” He expects the new administration to scrutinize this trend heavily. He also adds that the true beauty of Silicon Valley lies in the innovation and technology bolstered by small tech and mergers and acquisitions.
Speaking of big tech, he suggests that these names have been cutting down on M&A deals and have instead directed their resources to stock repurchases, dividends, and onboarding new GPUs. He expects the new administration to alter the trend and loosen up the ability to do mergers and acquisitions.
Gertsner also suggests that the US market will be better off with a functioning mergers and acquisitions flow in Silicon Valley, which he refers to as the “heartbeat” of the place. He also shared his thoughts on the program, Invest America, which is expected to provide kids with $1,000 in seed money into investment accounts as soon as they are born. He has been working with leading lawmakers in the country to promote the program and is highly optimistic about its outcomes.
Gerstner is bullish on the program and highlighted that the move will bring a new era of enterprise, innovation, and capital management to the US economy. He added that this program will bolster the private market and likely create 3.7 million new stock market investors yearly. In addition to investors like Brad Gerstner, many large tech companies are on board with the program.
Brad Gerstner is one of the top technology investors and has had many notable transactions over the past few years through his firm. He is bullish on tech and innovation, particularly artificial intelligence. In Q3 2024, he initiated 8 new positions and also raised his stakes in 7 stocks, ending the quarter with a portfolio of $6.75 billion in 13F securities. With that, let’s discuss his top new picks as of Q3 2024.
Our Methodology
We scanned Altimeter Capital’s Q3 2024 portfolio and picked new additions from the fund’s top 13F holdings. Additionally, we’ve also added overall hedge fund sentiment, as of Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Taiwan Semiconductor (TSM) the Best New Pick in Brad Gerstners portfolio?
A robotic arm holding a semiconductor chip, emphasizing the precision and quality of the company's production equipment.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Altimeter Capital’s Stake Value: $90,185,094
Number of Hedge Fund Holders: 158
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is a semiconductor company that makes chips for technology giants like NVIDIA and AMD. TSM attributes its revenue growth to the increasing demand for artificial intelligence. In the third quarter of 2024, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) logged revenue worth $23.7 billion (NT$759.69 billion) and net income worth $10.13 billion (NT$325.26 billion), up by 39% and 54.2% year-over-year, respectively.
In addition to the company’s solid financial growth, TSM is also working to penetrate new markets. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) recently established a joint venture with some partners in Germany and also accelerated its partnership with Amkor to improve packaging facilities in Arizona.
Overall, TSM expects its four-year revenue to increase by nearly 30% due to the growing demand for artificial intelligence. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also plans to spend nearly $32 billion to $40 billion in capital expenditures in 2024 and expects revenue from AI chips to grow at a compound annual growth rate (CAGR) of 50% by 2027.
Baron Global Advantage Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q3 2024 investor letter:
“We established a small position in Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). Morris Chang founded TSMC in 1987, as the world’s first dedicated semiconductor foundry. Until then, semiconductor chips were always designed and manufactured by the same company. TSMC introduced a groundbreaking new business model, in which it acted purely as a contract manufacturer, which proved to be highly successful. TSMC maintained a focus on improving its manufacturing process technology and enabled the emergence of innovative fabless design companies, including NVIDIA, Apple, and Qualcomm, who became TSMC’s key customers. Today, TSMC has a more than 60% share of the total semiconductor foundry market and over 90% share in leading-edge manufacturing. TSMC enjoys high barriers to entry given the ever-increasing cost and technological complexity of semiconductor manufacturing while benefiting from economies of scope as once leading-edge manufacturing becomes lagging edge on fully depreciated equipment. TSMC also benefits from scale– higher profits lead to higher R&D and capex investments, allowing for further technological differentiation, resulting in more profits. We believe TSMC will sustain strong double-digit earnings growth for years to come, driven by continued market share gains, strong pricing power, and structural growth in AI demand. According to C.C. Wei, TSMC’s CEO, “almost all the AI innovators are working with TSMC to address the insatiable AI-related demand.”6 Management forecasts that revenue from server AI chips, such as GPUs and other AI accelerators, will grow at a 50% CAGR from 2022 to 2028 and account for more than 20% of TSMC’s revenue by 2028. We except further long-term upside from the eventual proliferation of edge AI devices, including AI smartphones and AI PCs, which will require significantly more computing power and drive even stronger demand for TSMC’s leading-edge technology.”
Overall, TSM ranks 2nd on our list of new stock picks in Brad Gerstner's portfolio. While we acknowledge the potential of TSM to grow, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
