We recently compiled a list of the Best Future Stocks For The Long-Term. In this article, we will look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) ranks among the best future stocks for the long term.

A Soft Landing is More than Likely

The Fed plans to initiate rate cuts for the first time in over four years and investors do not know what to expect of the financial markets moving forward. On September 17, Stephen Juneau, Bank of America US economist, appeared in an interview on Yahoo Finance to discuss the impact of an unexpected growth in consumer spending on the economy.

Juneau reiterated that economic data is highly volatile and that the retail data released this morning will not impact the Fed’s rate cut decision tomorrow, and he expects the Fed to stick to a 25-basis point cut. As for consumer behavior, the economy is finally moving toward normalization and the consumer’s basket of goods reflects that. These indications, the increasing labor demand, and a stable investment outlook hint that a hard landing is highly unlikely.

The Outlook of Investing Amid Rate Cuts

On September 17, Eric Freedman, US Bank Asset Management Group CIO, appeared in an interview on Yahoo Finance to discuss the rate cut and how investors view investing. Freedman said that the rate cut depends on the Fed’s path, therefore an accurate prediction may not be possible at the moment.

Freedman talks about investment from an individual perspective, suggesting investors must move out of the front end of the yield curve. He then pointed to sectors that are currently providing value to investors, including the consumer discretionary sector, some parts of the energy sector, and tech, especially because investments in the sector are predicted to grow rapidly, well into 2025.

He then discussed what companies need to do to attract investors. Freedman emphasized the need for strong financials and suggested that companies should engage in buybacks or consider increasing dividends. The perfect combination of stocks, according to Freedman, includes companies that are returning cash and seeing strong organic growth.

The future of the economy and the financial market is quite unpredictable. However, some stocks can influence the market not just now, but also in the future. With that, let’s take a look at the best future stocks for the long term.

Our Methodology 

To come up with the 10 best future stocks for the long term we looked up growth stocks in the AI, Cloud, Cybersecurity, Biotechnology, Electric Vehicle, and Renewable Energy industries. We then ranked the stocks with the highest number of hedge funds as of Q2 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).

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)

Number of Hedge Fund Holders: 156

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) ranks second on our list of the best future stocks for the long term. TSMC is a semiconductor manufacturing and design company. The company is a leading fabrication partner that makes chips for tech giants including Nvidia and AMD.

In the second quarter of 2024, the company’s revenue increased by 13.6% sequentially, led by growing demand for its nanometer technologies. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects revenue from AI chips to increase at a compound annual growth rate (CAGR) of 50% by 2027. For the year ended 2024, TSMC projects a 20% growth in revenue, again driven by the demand for chips used in artificial intelligence.

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) will be successful as long as technology remains trending. Success does not come without dedicated strategic investments in technology and that is exactly what the company does. TMSC expects its 2024 capital expenditure budget to lie between $30 billion and $32 billion. Of this, 70% to 80% of the budget will be allocated to advanced process technologies, nearly 20% will be directed to specialty technologies, and 10% will be spent on advanced packaging, testing, and mass-making.

Despite macro headwinds and geopolitical turmoil in the country, analysts are bullish on the stock, and their 1-year median price target of $209 points to a 25% upside from current levels. Overall, TSM was held by 156 hedge funds at the close of Q2 2024 with total stakes amounting to $21.28 billion. As of June 30, Fisher Asset Management was the largest shareholder with a position worth $4.94 billion.

Wedgewood Partners’ Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2024 investor letter:

“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was a top contributor to performance during the quarter. The Company’s revenue growth continued to accelerate due to the rollout of its leading-edge N3 manufacturing node along with strong demand for chips used in artificial intelligence applications. Unlike in traditional CPUs, the Company has blue-chip customers, monopoly market share for manufacturing AI chips, such as GPUs. The Company’s aggressive investment in capital equipment several years ago should continue to pay off as fabless chip designers proliferate and require a manufacturing partner to shoulder capex risk. The Company’s continued aggressive investment and deployment in semiconductor manufacturing equipment is not an easily replicable competitive advantage.”

Overall, TSM ranks 2nd on our list of the best future stocks for the long-term. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher 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 was originally published on Insider Monkey.