We recently published a list of 10 Best Stocks to Buy For Long Term Growth. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against other best stocks to buy for long term growth.
Strategist Expects S&P 500 to reach 6,600
Some investors consider 2024 as a transition year, while others debate that this year was just the beginning of the level of volatility awaiting financial markets in 2025. It is not an exaggeration to say that 2024 has been rough for markets given that crucial events like the commencement of an easing cycle followed by the US elections remained a major influence on the overall environment. Amid all these awaited events, the tech sector has not been an investor favorite, however, that may change sooner than we think.
On November 26, Venu Krishna, head of US equity strategy at Barclays, joined Yahoo Finance to share his opinion on the stock market, particularly the tech sector. Krishna raised his S&P 500 price target for 2025 to 6,600 and shed light on why he believes such is possible.
He shared that the economy is pretty constructive from a macro perspective given that the virtuous cycle between income and employment remains solid. He added that consumer balances are going up and believes that the overall economic conditions of the country have been positive. All these reasons combined explain the price target of 6,600 for the S&P 500.
Speaking of the technology sector, Krishna agreed that the “market is, on a consistent basis, underestimating the earnings power of tech, especially big tech.” He added that at the same time, the market is also overestimating the earnings power of the other non-tech names in the S&P 500. He shared that the market expected Big Tech to post earnings up by 19% year-over-year and have “flat revisions” in the third quarter. Non-tech stocks on the other hand were marked down by 2%.
However, Krishna revealed that as the earnings period of Q3 2024 comes to a close, Big Tech actually delivered 31% of earnings growth during the quarter. He added that non-tech stocks have moved in the same direction but only incrementally. He explained that, for example, non-tech stocks were originally marked down, but instead, they expanded by 2%, accelerating at a very slow pace.
He also emphasized that the rate at which the market expects Big Tech earnings to slow down is in reality much lower than the actual deceleration rate. Overall, Krishna expects the market to converge but highlighted that it may not be as close as we expect it to be, probably not sooner than Q1 2026.
While turmoil and uncertainty remain a key element in the market, some stocks are revolutionary enough that they are bound to offer great opportunities in the coming years, if not now. That said, let’s take a look at the 10 best stocks to buy for long term growth.
Our Methodology
To come up with the best stocks to buy for long term growth we sifted through multiple rankings on the internet. We then examined the hedge fund sentiment of each stock and ranked them in ascending order of the 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).
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: 158
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the best stocks to buy for long term growth. The semiconductor company makes chips for technology giants like NVIDIA, Apple, and AMD.
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, driven by the increasing demand for artificial intelligence.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is expanding its presence across the world. The company recently formed a joint venture with major partners in Germany and expanded its partnership with Amkor to facilitate advanced packaging in Arizona, fueling the semiconductor ecosystem in the region.
To emphasize TSM’s position in the market, on July 18, Matt Bryson, SVP of equity research at Wedbush Securities joined Yahoo Finance. Bryson discussed the overall market and shared that TSM is not going anywhere despite geopolitical tensions. He added that “there’s no alternative to Taiwan Semi.” Overall, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) plans to spend $32 billion to $40 billion in capital expenditures in 2024 and expects revenue from AI chips to increase 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 6th on our list of best stocks to buy for long term growth. 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.
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Disclosure: None. This article is originally published at Insider Monkey.