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Following billionaire hedge fund managers is a great way to source investing ideas. While you shouldn't blindly follow them in every trade, looking at what they own and have recently bought is a smart investment strategy.
One billionaire I follow is Stanley Druckenmiller, who manages the Duquesne Family Office. Druckenmiller's portfolio is full of companies from all industries, so he's not focused on tech specifically. However, his second-largest holding is a notable name in the tech space: Taiwan Semiconductor Manufacturing (NYSE: TSM).
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Druckenmiller's portfolio has a sizable stake in TSMC, and I think it's a smart buy for many investors.
Investors get a peek at any fund with a portfolio larger than $100 million 45 days after each quarter ends. So, the information available now shows his holdings as of June 30. This information was made available on July 15, so it's a bit stale by now. However, the key is to find managers that hold onto stocks for a long time, since being directly on time to follow their moves isn't as critical.
At the end of the second quarter, Druckenmiller owned about 590,000 shares of TSMC, valued at over $280 million. That makes up about 6.5% of the firm's invested assets, good enough for his second-largest holding. That suggests a lot of bullish sentiment toward TSMC's stock, so why is he so sure TSMC will be a winner?
While several other chip foundries compete with Taiwan Semiconductor, none can match its scale. In Q2, TSMC was estimated to account for 72.5% of global chip foundry revenue.
If you're a company that's going to have a chip fabricated by an outside manufacturer, it's very likely that TSMC is on top of the list to go to. It has the scale to produce the chips and leading technology as well. That one-two punch makes TSMC a top partner in the chip world, and it shows up in its results.
During Q2, its revenue rose 33% year over year while earnings per share increased over 70%.
TSM Revenue (Quarterly YoY Growth) data by YCharts.
This coming quarter is expected to be even better, with revenue growth estimated to be about 47%, according to Wall Street analysts. That will be a fairly sizable growth acceleration, ranking it among the best quarters Taiwan Semiconductor has seen in recent history.
This confirms why Druckenmiller has invested in TSMC, but is it still a good buy now? After all, the latest information we have on his holdings was from June 30.
I think the best way to value Taiwan Semiconductor's stock is to value it using its forward earnings ratio and next year's projected earnings. From this perspective, TSMC tends to reach about 30 times forward earnings at the end of the year, so there is a bit of upside left. However, when you use next year's earnings projection to value the stock, there is even more upside remaining, mainly due to the artificial intelligence (AI) arms race being far from over.
This makes Taiwan Semiconductor a great multi-year play, and with Wall Street expecting 35% revenue growth next year, it's clear that Taiwan Semiconductor still has a lot of room to run over the next few years.
I think that makes Taiwan Semiconductor an excellent investment as it has billionaire backing, partnerships with some of the biggest AI companies in the world, and trades at a reasonable price tag. Furthermore, its size is so massive that it practically has a monopoly in the chip fabrication space. All that adds up to make TSMC one of the top stocks to buy right now.
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Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Billionaire Stanley Druckenmiller Has Millions in This 1 Monopoly Chip Stock was originally published by The Motley Fool
