With a personal net worth of approximately $6.5 billion and $46 billion under management at his Coatue Management fund, Philippe Laffont is noted for his exceptionally astute and successful tech investing. Laffont is also the latest in a line of several billionaire investors to sell sizable portions of their NVIDIA holdings. In 2024, Laffont sold about 77 percent of his NVIDIA stake, potentially signaling that he believes that the stock has reached the limits of its long and extraordinary run.
Laffont, though, isn’t getting out of the market. Even as he sold NVIDIA, the investor was loading up on other stocks with the potential to deliver alpha. One such stock was Taiwan Semiconductor Manufacturing (NYSE:TSM).
Laffont recently bulked up his position in the stock by over 6%, bringing his total to just short of $2 billion. Why is Philippe Laffont so interested in TSM, and could the stock be worth looking at for other investors trying to find good buys in today’s high-price stock market?
Why Does TSM Appeal to Philippe Laffont?
The first and most obvious explanation for Laffont’s interest in TSM is the fact that it’s an extremely strong pick-and-shovel play on the market for semiconductors. As of Q3 2024, the company had a 64% global market share in the semiconductor foundry market. The company manufactures chips for many major tech companies, including but not limited to Apple, AMD and even NVIDIA itself. As such, TSM enjoys an incredibly strong moat as a maker of advanced semiconductors.
This deep structural tie to the global semiconductor market puts TSM in a prime position to benefit from growing demand for AI chips. By 2030, the global market for semiconductors is expected to reach $1 trillion. AI and the proliferation of EVs are both expected to give the market substantial tailwinds.
While individual players may compete with each other on performance and price, TSM will remain the go-to foundry for most of the major tech companies due the billion dollar price tag needed simply to build a plant let alone operate it.
Another appealing aspect of TSM is the fact that the company appears to be taking steps toward insulating itself from the rise of trade tensions worldwide. The company has already built a fabrication facility in Arizona and secured subsidies for two more that will open in the coming years. By moving some of its production to the United States, TSM can protect itself from tariffs and provide a direct supply chain to its large American customers.
Getting down to the company’s performance, TSM has a strong track record of revenue growth that could make the company appealing to an investor like Laffont. In 2020, the company’s total revenue was $47.7 billion. By 2024, trailing 12-month revenues exceeded $80 billion.
TSM is also impressively profitable. The company’s return on equity is about 30.3%, while its net margin is 40.5%. Assuming TSM can further capitalize on high demand, revenue growth is highly likely to translate to a mushrooming bottom line.
TSM Looks Better Than NVIDIA on 2 Metrics
Another reason that Laffont may have made the decision to buy TSM as he was reducing his NVIDIA position is the staggering difference in how the two companies are valued.
TSM was priced at 28.2 times earnings and 11.4 times sales. NVIDIA, by contrast, was trading at 52.9 times earnings and 29.5 times sales.
This disparity in pricing becomes even more stark when we consider that the expected forward growth rates for the two companies aren’t too far apart. Over the coming five years, analysts predict that TSM’s earnings per share will rise at a compounded annual rate of about 33%. The rate for NVIDIA, meanwhile, is predicted at 38% over the same period.
While it’s clear that NVIDIA still has a meaningful edge in expected growth rates, the difference may not justify the fact that NVIDIA trades at almost twice TSM’s P/E ratio.
TSM’s Dividend Is Yet Another Reason to Buy
In addition to performing well and being intrinsically linked to one of the world’s fastest-growing markets, TSM also has the advantage of returning cash to its shareholders via dividends.
Right now, the company’s dividend yield is 1.2%, significantly higher than the payouts of most dividend-paying tech companies.
Even better for investors is the fact that TSM’s payout ratio is just over 30%, meaning that management has plenty of room to keep raising the dividend. This is especially true in light of the rapid earnings growth the company is expected to see in the coming few years.
Why Is Philippe Laffont Buying TSM?
Philippe Laffont appears to be buying TSM because it is forecasted to grow almost as fast as NVIDIA but is trading at a much lower earnings multiple.
Taking all of these factors into account, it’s not hard to see why a tech investor like Philippe Laffont would be bullish on TSM.
To begin with, the stock offers a high degree of exposure to the growing AI semiconductor market at a much lower price multiple than a company like NVIDIA. Combined with a strong performance history, efforts being made to guard itself against trade tensions and an attractive dividend, this could give TSM the ability to produce appealing returns over many years.
That isn’t to say, however, that TSM is without its risks. Geopolitical tensions may very well disintermediate the company’s operations, as China is seeing its relationship with the US worsen and becoming increasingly aggressive toward Taiwan.
As with other companies with AI exposure, TSM could also take a hit from the recent improvements that DeepSeek showed in model efficiency. These risks, however, still appear to be outweighed by the company’s positive prospects.
TSM could also still be a good buy for investors today. The average target price for the stock is $243.84, suggesting an upside potential of about 23% from the current price of $198.24. The stock also has a strong consensus Buy rating, with 13 of the 14 analysts covering TSM rating it a buy. Between a strong moat, seemingly fair pricing, rapid forward growth prospects and a dividend with long-term potential to expand, there’s quite a lot to like about TSM at the moment.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
