Hedge Funds’ Latest AI Play

A slew of new hedgies initiated positions in this semiconductor company.


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Hedge funds are signaling what they see as the next big artificial intelligence play: Taiwan Semiconductor Manufacturing Co.

In the first quarter, a large number of new hedgies initiated positions in the Taiwanese semiconductor contract manufacturing and design company and several-high profile hedge funds boosted existing stakes. A total of 45 hedge funds jumped into the stock and just 11 bailed on it, according to SEI Novus.

As a result, TSMC ranked as the 14th most widely held stock among hedge funds as of March 31, up from 27th place the previous quarter. That sharp move is unusual — the ranking of the top hedge fund holdings usually doesn’t change meaningfully from quarter to quarter.

As Institutional Investor recently reported, Valiant Capital Management reported in its first-quarter client letter that it had established a position in Taiwan Semiconductor, making the company its second-biggest long position. In its first-quarter 13F filing, Valiant disclosed a large position in TSMC call options but no position in the American Depositary Receipts.

However, in the first-quarter client letter, Valiant founder Chris Hansen said the firm used the recent market weakness in April to increase its exposure to TSCM and Broadcom, another position it initiated in the first quarter, and AI superstock Nvidia, which it aggressively added to in the first three months of the year.

Several other hedge funds established new, small, or midsize positions, according to 13F filings, including Whale Rock Capital Management, Trian Fund Management, and Kingdon Capital Management. Meanwhile, Light Street Capital Management boosted its stake by nearly 50 percent in the first quarter, making it the Tiger Grandcub’s second-largest U.S.-listed long, accounting for about 11 percent of assets. It ranks behind Nvidia, which made up 17 percent of assets at the end of March.

Coatue Management turned a nearly insignificant stake at year-end into the firm’s fifth-largest U.S. long. The Tiger Cub is also the largest hedge fund investor in TSMC.

“We believe TSMC is one of the best businesses in the world and is the only provider of truly leading-edge semiconductors,” Hansen stated in the first-quarter letter. “As such, we are confident the substantial performance, power, and cost efficiencies of their leading-edge processors should mean the global growth of AI infrastructure will overwhelmingly benefit them.”

He stressed that TSMC’s “relentless pursuit of improvement” contrasts with “a conservatively managed business model.” Hansen added that in a volatile industry prone to boom-and-bust cycles, TSMC has long “prioritized” return on invested capital, which has averaged more than 20 percent since the global financial crisis and has never fallen below 15 percent.

“Additionally, we believe they have several unused pricing levers that imply further conservativeness in the financials,” Hansen said, noting that the opportunity to buy shares of TSMC at what he calls “a relatively undemanding” price-to-earnings ratio of 19 times current-year earnings — and a discount to the broader market — represents “a compelling investment opportunity.”