We recently compiled a list of the 7 Unstoppable Artificial Intelligence (AI) Stocks To Buy Now. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other unstoppable AI stocks.
Is Predictive AI Taking Over GenAI?
Generative AI is taking the world by storm. This groundbreaking technology is capable of creating new content, such as text, images, and even music, based on the patterns it learns from existing data. The impact of this advancement in AI on businesses has been profound, with businesses using it to automate tasks, improve efficiency, and generate innovative solutions through personalized content.
While there are still challenges, GenAI’s potential is undeniable. AI companies have rolled out GenAI platforms, integrating large language models in them, that are a click away from the general public’s access. We talked about this earlier in our article about the 10 Best Small Cap AI Stocks to Buy According to Short Sellers. Here’s an excerpt from it:
“Large language models are a type of AI that uses deep learning techniques and massive datasets to understand, generate, and predict human language. They’re trained for all of this through statistical relationships from vast amounts of text. The reason why they became so popular in such a short time is because they can be fine-tuned for specific tasks or understand language better through specific prompts. LLMs like Gemini and ChatGPT-4 are Multimodal AI platforms that allow processing and generating multiple types of data simultaneously, such as text, audio, and visual inputs.”
GenAI has been popular recently due to advancements that have brought us models like ChatGPT-4, but predictive AI (or enterprise machine learning) has been prevalent in the business world for a longer period. It’s been used extensively for tasks like fraud detection, customer churn prediction, and market analysis. GenAI excels at creating new content, but predictive AI is better suited for tasks that involve forecasting future trends or predicting outcomes based on historical data.
Mature organizations with streamlined processes use predictive AI as it helps deliver high returns and improve the customer experience. Forbes reported that UPS saves $35 million annually by optimizing package delivery planning. A medium-sized bank could save $16 million annually by predicting fraudulent transactions. A marketing campaign could increase profit 5x by predicting consumer behavior.
GenAI spending was less than 7% of predictive AI last year. However, predictive AI’s potential remains largely untapped due to challenges in operationalization. It can operate autonomously, while GenAI often requires human oversight. It is also cheaper and has a smaller footprint than the latter. The global predictive AI market is expected to grow from $14.9 billion in 2023 to $108 billion by 2033, with a CAGR of 21.9% from 2024 to 2033, according to a report published by market.us.
Google AI’s investment of $100 billion in responsible AI initiatives, focusing on areas like healthcare, climate change, and cybersecurity, indicates this sector’s importance and potential. Similarly, SoftBank’s $3.5 billion fund for predictive AI startups and Sequoia Capital’s substantial investment in PreCog are also examples of this. In 2023, the Large Enterprises segment captured more than a 65% share in the Predictive AI market.
Predictive AI is used for large-scale operations, learning from data to predict outcomes and behaviors, and guiding millions of daily operational decisions. Such use cases are further a testament to how artificial intelligence is now an integral part of major industries of the world, whether directly or indirectly.
Methodology
To compile our list, we sifted through ETFs, online rankings, and internet lists to compile a list of 15 AI stocks. We then selected the 7 stocks that were the most popular among elite hedge funds and had gained at least 30% year to date. The stocks are ranked in ascending order of the year-to-date performance, as of September 4.
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).
A close-up of a complex network of integrated circuits used in logic semiconductors.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 156
Performance (Year-to-Date) as of September 4: 54.32%
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the world’s largest contract chip manufacturing company, designing microchips used in electronics and other industries, including healthcare and communications.
It makes up 60% of the total chip and 90% of the advanced chip manufacturing industry. Currently, it is held by 156 hedge funds, with the largest stake valued at $4,937,464,673, held by Fisher Asset Management.
The company’s 2024 capital budget is now estimated to be $30-$32 billion, up from the previous estimate of $28-$32 billion. This increased investment reflects the strong demand for AI-related technologies. Most of the capital will be allocated to advanced chip manufacturing processes, with a smaller portion dedicated to specialized technologies and advanced packaging.
In Q2 2024, the revenue generated was $20.58 billion, recording a 33.30% year-over-year growth. The earnings per share for the period were $1.48, higher than the $1.38 in Q1. This growth was supported by strong demand for industry-leading 3-, 7-, and 5-nanometer technologies.
The company’s leadership in advanced processes will drive customer growth, stable production, and lower costs. Management estimates a 10% growth in the overall semiconductor market (excluding memory) for the full year 2024. Such outlooks make it one of the best AI stocks.
Ariel Global Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:
“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also traded sharply higher in the quarter, following its annual shareholder meeting where management highlighted robust earnings visibility. The boom in AI investment is driving significant demand for the semiconductor hardware that enables it. TSMC currently holds a dominant position in relevant chip manufacturing and packaging. Additionally, although AI investments have been mostly focused on the datacenter market, Apple’s recent announcement on “Apple Intelligence” kickstarted an Edge AI race—which will likely drive greater than expected semiconductor growth in smartphones. 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 the company remains committed to returning capital to shareholders through both buybacks and dividends is another plus.”
Overall TSM ranks 6th on our list of the unstoppable AI stocks to buy. While we acknowledge the growth potential of TSM as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. 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.
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Disclosure: None. This article is originally published at Insider Monkey.