We recently published a list of the 12 Best Long-Term Growth Stocks to Buy Now. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stands against other best long-term growth stocks to buy right now.
Expectations Regarding Fed’s Rate Cuts in 2025
Released on Friday, February 7, the January jobs report showed resilience in the labor market with higher-than-expected wage growth. December’s monthly job gains also showed an upward revision, highlighting that the US labor market ended 2024 in a better position than previously reported. Economists are thus of the opinion that the Federal Reserve may not cut rates in the near future. Consequently, this increases pressure on inflation data to cool down before the central bank considers slashing borrowing costs.
On January 30, Jeffrey Gundlach, CEO of DoubleLine Capital, appeared on CNBC’s “Closing Bell” to discuss the stock market and the Fed’s decision to leave rates unchanged. Sticking to the opinion he gave in December, Gundlach was of the view that 2025 would bring a maximum of two rate cuts by the Fed. He reiterated that he was not predicting two cuts but that two would be the maximum number attained in 2025, keeping one rate cut as the base case for the year. The unemployment rate went up for several consecutive months before ticking down, which Gundlach thinks is a matter of deep solace for the chair of the Federal Reserve, Jerome Powell.
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What Does the 2025 Outlook for the Stock Market Look Like?
On February 10, Mary Ann Bartels, Sanctuary Wealth’s chief investment strategist, appeared on CNBC to discuss the 2025 outlook for the stock market. She showed bullish sentiment towards the market, particularly due to strong earnings growth. Comparing the current environment to previous periods of innovation, such as the 1920s and the 1990s, Bartels highlighted the role of robotics, AI, and Web3 in driving long-term growth in the present.
She noted that companies today fund investments with cash and equity rather than excessive leverage, unlike the 1990s. Her estimates showed that the S&P could reach 7,200 to 7,400 this year and 10,000 to 13,000 by the decade’s end, as she expects the bull market to extend through 2029 to 2030.
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 20 growth stocks. We checked their 5-year revenue growth (at least above 15%) and then selected the top 12 most popular stocks among elite hedge funds as of fiscal Q3 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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)
5-Year Revenue Growth: 22.02%
Number of Hedge Funds: 158
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is the largest contract semiconductor manufacturer in the world. Some of its prominent customers include semiconductor companies that outsource all or a part of their chip production, including Advanced Micro Devices, Nvidia, Broadcom, and more.
Demand for the company’s services is one of the primary reasons investors are bullish on the stock. It has plans to grow its capital expenditures (capex) to between $38 billion and $42 billion in 2025, which translates to an annual growth of 28% to 41%. It reported a 39% growth in its fiscal Q4 2024 revenue in the company’s local currency, New Taiwan dollars. It also reported a 57% EPS growth, exceeding analyst estimates in both measures. Its high-performance computing (HPC) platform, which includes AI chips, grew by 19%, accounting for around 53% of the total company revenue.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) also pays a dividend, unlike most companies in the semiconductor industry. Its dividend has grown by about 67% over the last 5 years. The company’s management estimates a revenue of $25 billion to $25.8 billion for fiscal Q1 2025. This translates to a 33% to 37% year-over-year growth, exceeding analyst estimates and reflecting continued optimism in its operations.
Wedgewood Partners stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) 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 5th on our list of best long-term growth stocks to buy right now. While we acknowledge the potential of TSM, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. 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.