We recently compiled a list of the 10 AI Stocks That Will Skyrocket. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against the other AI stocks.
DWS, an expert in active, passive, and alternative asset management, believes that expectations around the usage of Artificial Intelligence (AI) across industries acted as one of the critical stock market drivers over the previous 2 years. In 2025, AI developments are expected to make significant strides throughout various domains. The firm anticipates a shift from generalized applications to industry-specific solutions. Notably, companies are expected to refine their strategies to target specific use cases providing measurable results.
Generative AI CapEx Will Continue to Increase, Says DWS
DWS, while quoting Bloomberg estimates, highlighted that some of the big technology firms can collectively increase capex to ~$200 billion in 2025. More than $90 billion in incremental capital spending in 2024-25 vs. 2023 is projected to be earmarked mainly for expanding Gen AI infrastructure. On a related note, Goldman Sachs Asset Management believes that the AI capex from well-established hyperscalers is projected to surpass $250 billion in 2025. This hints at optimism that hyperscalers remain confident in the ROI (Return on Investment) they will witness from such significant investments.
DWS sees the de-globalization movement spreading to data and AI, with countries spending a significant amount to subsidize “sovereign AI.” To provide a brief overview, it refers to a nation’s capabilities to establish, control, and deploy its own AI technologies. It spans both physical and data infrastructures. Notably, in the past year, the governments of the US and China have pledged $40 billion – $50 billion each dedicated towards AI investments.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Key AI Trends to Watch Out
Appinventiv believes that conversational AI, Predictive Analytics, AI Democratization, Agentic AI, and Generative AI, among others, are some of the key trends to watch out for. While conversational AI focuses on streamlining customer interactions, generative AI has been revolutionizing content creation across fields including healthcare. Additionally, multi-modal Al remains one of the most popular AI trends in business. It focuses on leveraging machine learning trained on multiple modalities, including speech, images, and traditional numerical data sets. As a result, there will be a more holistic and human-like cognitive experience.
Appinventiv opines that companies can capitalize on multi-modal Al and develop intelligent systems analyzing diverse data streams, which can help improve natural language understanding and voice recognition for better user experiences.
Our Methodology
To list the 10 AI Stocks That Will Skyrocket, we sifted through several online rankings and shortlisted the companies catering to the broader AI sector. Next, we chose the ones that analysts see significant upside to. Finally, the stocks are arranged in ascending order of their average upside potential, as of February 24. We also mentioned hedge fund sentiments around each stock, as of Q4 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 373.4% since May 2014, beating its benchmark by 218 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)
Average Upside Potential: 34.6%
Number of Hedge Fund Holders: 186
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) remains a leading player in the broader AI industry mainly via its role as a leading semiconductor foundry. The company’s involvement remains important because AI systems need specialized, high-performance chips, and it happens to be one of the leading manufacturers of such chips. The ongoing AI boom provides a significant opportunity for Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s long-term growth.
With AI becoming more pervasive throughout different industries, spanning smartphones to data centers, the demand for AI-specific chips is projected to grow. The company’s expertise in manufacturing high-performance, low-power chips makes it a leading beneficiary of such a trend. Furthermore, the AI boom has been fueling innovation in chip design, resulting in new types of processors and accelerators. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s collaborative approach with customers and advanced packaging technologies help it stay in the advantageous position of such innovations, potentially resulting in new revenue streams and market opportunities. Bank of America Securities analyst Brad Lin reiterated a “Buy” rating on the company’s stock, setting a price target of $250.00.
As per the analyst, the revenue growth for 2025 is expected to be aided by strong demand in AI and high-performance computing sectors, together with increased average selling prices for leading-edge technologies and advancements in packaging. Also, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is projected to maintain peak utilization rates for its 3nm and 5nm technologies, courtesy of AI and smartphone applications. Baron Funds, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) contributed in the fourth quarter due to a cyclical recovery in semiconductors and significant incremental demand for AI chips. We retain conviction that TSMC’s technological leadership, pricing power, and exposure to secular growth markets, including AI/high-performance computing, automotive, 5G, and internet of things, will allow the company to sustain strong double-digit earnings growth over the next several years.”
Overall TSM ranks 9th on our list of the AI stocks that will skyrocket. While we acknowledge the potential of TSM as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued 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.