We recently compiled a list of the Jim Cramer on Taiwan Semiconductor, Netflix, and Other Stocks. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other stocks on Jim Cramer’s list.
Jim Cramer, the host of Mad Money, recently expressed concern that some investors are overlooking potential market opportunities by fixating on the Federal Reserve’s next moves regarding interest rates. He emphasized that, over the years, many in the investment community have become overly reliant on the Fed’s actions rather than focusing on individual companies and their profitability.
“Everyone who’s obsessed with the Fed’s next foray is basically investing with blinders on, and as a result, they’re missing out on some of the greatest moves I’ve ever seen in my life. Moves coming from the most unlikely of stocks. And I don’t want to see you ignoring these opportunities anymore.”
Cramer said that he is an admirer of Fed Chair Jay Powell, but he recognizes the limits of the Fed’s influence. He noted that while Powell wields significant power, he cannot dictate the performance of high-quality companies that are less affected by economic cycles. According to Cramer, when a company is not tied to the business cycle, it is less susceptible to the whims of the Fed. However, many traders still seem oblivious to this reality.
“… I needed to say something because over the past couple of decades, so many people in this business have become creatures of the Fed, not of companies and the profits that they make. Unless the Fed’s happy… unless it has its pound of flesh, these Fed watchers won’t pull the trigger and buy stocks, even stocks of companies have almost nothing whatsoever to do with our central bank and are doing really well.”
He highlighted that fear of the Fed often extends to stocks that appear pricey based on earnings multiples, particularly when investors worry that the Fed might have to abandon rate cuts to combat inflation. This fear, he noted, can drive investors away from promising sectors, like semiconductors. While Cramer acknowledges the importance of being aware of the Fed’s actions, he insists that it should not become an obsession. He believes that although the Fed has considerable influence, it is not all-powerful.
He clarified that he does not claim the stock market will never decline during periods of Fed easing, but he maintains that there are limits to the Fed’s impact.
“I’m not saying the stock market will never go down when the Fed’s easing… I am saying there are limits to what the Fed impacts. And I swear by the managers who know a lot about business, and who don’t cower when Jay Powell grabs the mic to talk about the pace of rate cuts.”
Our Methodology
For this article, we compiled a list of 7 stocks that were discussed by Jim Cramer during his episode of Mad Money on October 17. We listed the stocks in ascending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
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
In a recent episode of Mad Money, Cramer was a big proponent of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) as he explained why the semiconductor giant is important in today’s landscape.
“… If you didn’t listen to Taiwan Semi’s conference call last night, you missed out on a performance that explains so much of what’s going on in this market, in the world.
I’m talking about the off-the-charts demand for chips that enable artificial intelligence. Those are almost all manufactured by Taiwan Semi, which is the crucial cog in the semiconductor machine. That’s how you know this move is for real.
This company is the biggest and the best. Last night was a tour de force show, especially for one customer, Nvidia. They might as well have entitled the conference call in praise of Nvidia because Nvidia is crushing it in partnership with this amazing Taiwanese company. I talk about Nvidia a great deal, but I don’t say much about Taiwan Semi, which is wrong. See, like most American semiconductor companies, Nvidia is actually more of a designer. Taiwan Semi is the company that builds the product.. You can’t have Nvidia without Taiwan Semi.”
Cramer discussed the company’s focus on AI-related operations and its position in the AI industry, saying:
“How close are they? Let me quote from Doctor C. C. Wei, he’s a PhD and chairman and CEO of Taiwan Semi ‘So one of my key customers said the demand right now is insane.’ Well, the key customer is Nvidia. And like Nvidia’s redoubtable, implacable CEO Jensen Huang, Wei says that the demand for AI chips ‘is real, and I believe it is just the beginning of the demand.’
Bingo. There it is. Unlike ASML, the semiconductor equipment maker that gave you a sob story about the whole industry the other night, with the exception of AI, Taiwan Semi’s focused on the cutting edge of the industry. That’s what they are. They know it because they use it. As Wei said, ‘We have our real experience. We have been using AI and machine learning in our fab and R&D operations. By using AI, we are able to create more value by driving greater productivity, efficiency, speed, qualities.’
He goes on to explain that Taiwan Semi’s customers would say the same thing. What a contrast to the lame ASML call that caused so many people to sell Nvidia. Panic, panic, and once again revved up the chip obituary machine.”
Taiwan Semiconductor (NYSE:TSM) is engaged in the production, packaging, testing, and distribution of integrated circuits and various semiconductor components. As a key player in the industry, it is responsible for the majority of the global supply of advanced high-end semiconductors, which are essential for powering many artificial intelligence applications.
The company announced third-quarter results on October 17 and reported revenue of 759.7 billion New Taiwan dollars (1 New Taiwan Dollar = $0.031), a significant increase of 39% compared to the same period the previous year. The company also experienced a noteworthy rise in earnings per share, which climbed to NT$12.54, which is a 54% year-over-year improvement. According to CFO Wendell Huang, these strong results are because of heightened demand in both smartphone and AI-related markets.
Among Taiwan Semiconductor’s (NYSE:TSM) revenue streams was its high-performance computing segment, which includes chips utilized in AI technologies. It experienced a remarkable growth of 51% year-over-year. The surge highlights the increasing reliance on advanced computing capabilities to support AI innovations. Additionally, the recovery in smartphone sales contributed to the company’s overall performance, with revenue from this sector increasing by 34%.
Overall TSM ranks 1st on our list of the stocks Jim Cramer is talking about. 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.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.