TSMC: A Hedge Fund Favorite That Could Be Headed to $290

Though we’ve only gotten a small glimpse of the second-quarter moves made by the smart money crowd, it’s looking like shares of Taiwan Semiconductor (NYSE:TSM) are an early favorite among a number of hedge funds. And it’s not hard to see why, given how heavily the semiconductor industry leans on the foundry giant. Of course, there are some serious risks associated with being based in Taiwan, especially given the risk of escalating tensions with China.

While investors certainly shouldn’t write off the potential impact of such geopolitical risks, Taiwan Semi’s managers have already done a great job of diversifying internationally. Of course, there’s still much work to be done as the firm expands its production capacity beyond Taiwan. In any case, the company is on the right track, and a sound plan is in place to mitigate the most significant risk facing the company.

In the meantime, TSMC is poised to continue being a significant winner that’s more than capable of putting up more wins, as it maintains its front-row seat to the AI-fuelled chip demand boom. And with the 2nm process ramp well underway for the second half, I find TSM stock to be one of the timeliest tech names for investors looking to cash in on the AI boom. Could following the smart money be a profitable move going into the second half? I think it could be.

Taiwan Semiconductor stock: The cheapest of the so-called “three horsemen”

With shares going for 28.3 times trailing price-to-earnings (P/E), the name still appears to be a relative value play, especially compared to the other two names in the so-called “three horsemen,” a term coined by Mizuho analyst Jordan Klein to describe a trio of fast-moving AI chip giants, including TSMC, Nvidia (NASDAQ:NVDA), and Broadcom (NASDAQ:AVGO).

Some investors may overlook TSMC for the likes of a pricier AI chip stock (think NVDA or AVGO) due to the potential risks associated with China-Taiwan relations. That said, as the company keeps its foot on the accelerator while the next phase of the AI revolution takes place, it’s getting harder to pass up on the name that’s both a relative value play and a high-momentum hero that may be well on its way to hitting a $2 trillion market cap after recently breaking into the $1 trillion club.

Getting ready for N2 and more strength from the AI boom

Some big-name tech titans are already aboard as TSMC puts the finishing touches on its N2 process. Whether we’re talking about the next generation of AI data center chips or edge-computing devices going into the latest and greatest smartphones, it’s hard to imagine demand slowing as production goes online in the coming months, even if tariffs cause added pressure on the American economy.

Apart from the rise of N2, AI-related demand looks like it’ll continue to take sales growth to new heights. TSMC has prepared accordingly, with a massive $165 billion invested in fabs to ready up for what could be another big AI-driven boom. 

With Bank of America analyst Brad Lin recently slapping TSM stock with a Street-high $290 price target over demand momentum and AI tailwinds, perhaps it’s not too late to buy the foundry giant that two big-name hedge funds (and counting) scooped up in the second quarter.

It’s not only a low-cost way to ride the AI wave higher, it’s one of the cheapest and most predictable. Add the capabilities of management into the equation, and TSM shares do look poised for another 20% gain from here.

The bottom line

Don’t look for the newest member of the $1 trillion club to take a breather as AI-driven demand for the next generation of chips looks to take it a step further. TSMC is ready for the coming second-half boom as N2 production comes online, as AI innovators look to keep spending serious sums to pull ahead in the AI race.

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