We recently compiled a list of the Harvard University Stock Portfolio: Top 10 Stock Picks. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against Harvard University’s other stock picks.

When it comes to college prestige, Ivy League institutions lead the rankings. For an investment that can approach $60,000 per year in tuition and fees as of the 2022-2023 academic year, these schools promise an elite education and promising career prospects post-graduation. Although opinions may vary on which Ivy League school offers the best education, there’s no debate over which has the largest endowment. Harvard University’s endowment stands at an impressive $53.2 billion, bolstered by generous donations and strategic investments managed by the Harvard Management Company (HMC).

Founded in 1974, Harvard Management Company provides a dedicated funding stream that supports the university’s teaching and research, contributing over one-third of Harvard’s annual operating budget. In fiscal year 2024, Harvard’s endowment distributions totaled $2.4 billion, representing 37% of the university’s annual revenue. These funds supported key areas such as financial aid, faculty, and research initiatives. The university allocated $749 million toward financial aid across its schools, including $250 million for undergraduates. Harvard’s endowment portfolio is heavily weighted toward private equity and hedge funds, with private equity comprising 39% of the portfolio and hedge funds making up 32%.

According to Harvard Management Company CEO N.P. “Narv” Narvekar, the endowment targets an 8% return, and its seven-year annualized return of 9.3% has exceeded that goal. This performance currently places it mid-tier among Ivy League and other elite institutions. While its fiscal year 2024 return did not match Columbia’s 11.5% or Brown’s 11.3%, it outpaced those of MIT, Cornell, Dartmouth, and the University of Pennsylvania. Despite fiscal year 2024 being a strong period for public equities, with the S&P 500 frequently hitting record highs, Narvekar states that HMC’s strategy of lower public equity exposure still delivered robust returns:

“In FY24, public equity and hedge fund portfolios stood out for their strong performance. This is a particularly positive indicator, since HMC’s hedge fund portfolio has less equity exposure than most hedge fund indices, yet still outperformed during a strong year for equities.”

Notably, HMC significantly reduced the endowment’s exposure to real estate and natural resources, scaling it down from 25% in 2018 to just 6% in fiscal year 2024. This strategic shift has contributed positively to the endowment’s overall returns. Large-cap technology equities, particularly in the IT sector, may have also boosted returns for the fund. Michael Markov, founder of Markov Processes International, suggested that Harvard likely benefitted from “overweighting IT and the Mag 7 relative to the broad S&P 500.” Markov considers fiscal year 2024 a success for Harvard and a testament to HMC CEO Narvekar’s strategy of overhauling the university’s complex portfolio during his seven-year tenure.

Our Methodology

For this analysis, we examined Harvard Management Company’s stock portfolio from the third quarter of 2024. The stocks are ranked based on the firm’s stake value in each holding.

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)

Harvard Management Company’s Stake: $84.88 million

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), based in Taiwan, supplies integrated circuits and other semiconductor devices to leading tech companies like Apple and NVIDIA.

For the third quarter, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) reported net revenue of $23.5 billion, marking a 36% year-over-year increase. The company’s gross margin also rose to 57.8%, up from 54.3% in the same period last year. Looking ahead, the company expects fourth-quarter revenue to range between $26.1 billion and $26.9 billion. This guidance represents a 13% sequential increase and a 35% year-over-year increase at the midpoint. Moreover, during the Q3 earnings call, TSMC Chairman and CEO C.C. Wei emphasized that AI demand is “real” and highlighted TSMC’s unmatched industry growth.

“We have talked to our customers all the time, including our hyperscaler customers who are building their own chips. And almost every AI innovator is working with TSMC.”

On October 19, Needham raised its price target for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) shares from $210 to $225, anticipating further upside in gross margins. Last year, Needham had forecast TSMC’s 2025 revenue at $110 billion, well above the then-consensus estimate of $96 billion. With TSMC consistently delivering “beat-and-raise” quarters, consensus estimates have since aligned with Needham’s projections, reflecting strong market confidence in TSMC’s growth outlook. For 2024, TSMC’s revenue is expected to reach approximately $90 billion, positioning the company for an estimated 23% growth in 2025.

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 8th on Harvard University’s list of top stock picks. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that certain 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 is originally published at Insider Monkey.