We recently compiled a list of the 15 Best Growth Stocks to Buy for the Next 5 Years. In this article, we are going to take a look at where Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) stands against the other growth stocks.

Kevin Mahn, President & CIO at Hennion & Walsh Asset Management, recently appeared on CNBC on January 6 to discuss the current market momentum and emphasize the need for investors to be selective in 2025 to find growth opportunities. He highlighted that while the MAG7 have led the market recently, their leadership may not continue. Mahn referenced historical data, noting that since 1950, there have been nine instances where the market rallied by 20% or more, with the market rising in eight of those cases. However, he pointed out that gains in the following year averaged only 3.6%, indicating a need for careful selection. He also acknowledged recent market trends, including a decline in the S&P 500’s performance and a potential shift in investor sentiment following events like the Santa Claus Rally.

He predicted a path of lower interest rates, expecting 50 basis points of cuts this year instead of the previously anticipated 100 basis points. Mahn suggested that this environment would create favorable conditions for stocks and bonds but urged investors to diversify beyond mega-cap tech stocks into sectors like biotech and aerospace. Earlier on January 3 as well, Mahn noted that after two consecutive years of gains, a third year of strong performance appears unlikely. He remarked that it seems the Grinch got in the way of the Santa Claus rally this year.

He also addressed concerns from investors tempted to time the market or sell their holdings. He warned against trying to time the market, describing it as often futile. Instead, he advocated for rebalancing portfolios to align with long-term goals and risk tolerance. He suggested that the economic landscape is changing, with lower interest rates and stagnant economic growth expected moving forward. Mahn advised investors to take profits from sectors that previously led the market and consider reallocating those funds into different areas poised for future growth. He highlighted biotech as a promising sector, noting bipartisan agreement on the need to lower drug prices. This shift could lead large-cap pharmaceutical companies to seek new revenue sources, making smaller biotech firms attractive.

Methodology

We first sifted through online rankings, and internet lists to compile a list of the top growth stocks to buy for the next 5 years. We then selected the stocks with high 5-year revenue growth and high analysts’ upside potential. From those we picked 15 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, 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).

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM)

Number of Hedge Fund Holders: 158

5-Year Revenue CAGR: 20.53%

Upside Potential as of January 15: 17.03%

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is a chipmaker that supplies advanced semiconductors to tech giants like Apple, NVIDIA, Qualcomm, and AMD. Its dominance in the industry, particularly in AI and high-performance computing, is driven by cutting-edge technology, including 2nm production and leadership in 3nm, 5nm, and 7nm nodes.

The company holds over 60% of the market share and benefits from industry-wide supply constraints, giving it significant pricing power. This has driven a 39% year-over-year revenue increase in Q3 2024, due to the surging demand for AI hardware. The company’s advanced manufacturing, including its crucial CoWoS packaging technology for AI chips, solidifies its leadership in semiconductor innovation.

Bank of America Securities analyst Brad Lin reiterated his Buy rating on the company, setting a $250 price target. Lin anticipates robust revenue growth in 2025 due to the increasing demand for AI and high-performance computing. He also emphasized the company’s attractive valuation, projected margin expansion, favorable industry tailwinds, and the potential for government support.

Wedgewood Partners acknowledged that Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is a top performer due to the surging demand for its advanced chips, which is driven by AI. Despite its dominant market position, it trades at a discount to other large-cap growth stocks, making it an attractive investment opportunity. Wedgewood Partners stated the following in its Q4 2024 investor letter:

“Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was another top contributor to performance during the quarter and for the year. The Company’s earnings growth dramatically accelerated compared to last year as the Company’s wafer fabrication and packaging volumes soared in 2024. In addition, the Company customer prices rebounded in the face of more normalized capital expenditures. The Company maintains a near-monopoly in the fabrication of nearly every new AI accelerator brought to market over the past two years. They continue investing tens of billions to build and 7ill future capacity with orders for what seems to be insatiable hyperscale demand for accelerated computing. The stock ended the year trading at a consensus forward earnings multiple that is several points lower than large cap growth benchmarks, despite the Company’s dominant position in the most important industry that is driving one of the largest technological shifts in a generation.”

Overall TSM ranks 2nd on our list of the best growth stocks to buy for the next 5 years. As we acknowledge the growth potential of TSM as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high 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: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.

Disclosure: None. This article is originally published at Insider Monkey.