Cathie Wood Is Doubling Down on This AI Stock. Should You?

Globe and Mail

4 days ago

Cathie Wood has had mixed results as an institutional investor. Her firm, Ark Invest, sells exchange-traded funds (ETF), and her focus is on tech disruptors. Some of her ETFs have outperformed the market over long periods, and others have delivered underwhelming performance, but she is confident in the future potential of her stocks.
Whether or not you agree with her stock picks or would invest in her company's products, investors can learn about up-and-coming tech stocks and see what she thinks about tech giants by following Ark Invest's trades. One stock she has been buying left and right recently is Taiwan Semiconductor Manufacturing (NYSE: TSM).
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Let's see why she's finding it interesting right now and whether or not it's a buy for you today.
The king of AI stocks
Taiwan Semiconductor is a foundry, and it produces the physical chips for most of the artificial intelligence (AI) chipmakers that are generating the AI revolution. So when people talk about the chips or graphics processing units (GPU) that Nvidia makes, Nvidia designs them, but its partner -- Taiwan Semiconductor Manufacturing Company, or TSMC -- actually produces them. That makes it an integral part of the growth of AI, and it also provides it with protection against a negative impact for any specific client.
The partnership also gives TSMC excellent long-term potential because regardless of whether it's AI or something else, chips are the underlying basis of almost all new technology. Some of TSMC's other high-profile clients include Apple and Advanced Micro Devices, and it produces chips for far more applications than AI, powering technology like smartphones, Internet of Things, and consumer products.
Because TSMC works with these clients, it's growing on their coattails. High-performance computing, which includes AI, increased from 46% of its revenue in the 2024 first quarter to 59% in the 2025 first quarter.
TSMC's own growth isn't quite as fantastic as Nvidia's, but it's high and steady. Revenue increased 35% year over year in Q1 2025, and management expects revenue to increase at a compound annual growth rate (CAGR) near 20% through 2029.
It's also incredibly profitable. Gross margin widened 5.7 percentage points in the first quarter to 58.5%, and operating margin was 48.5%. Earnings per share (EPS) increased 60%. The longer-term outlook is a gross margin of at least 53%.
TSMC stock had fallen earlier this year when the market was concerned about tariffs, but it's already climbing back up. It has an excellent long-term prognosis, and it also has an operational facility in Arizona that protects it somewhat from higher tariffs. North America accounts for 77% of its business, and management recently announced that it's going to expand its investments in the U.S. by $165 billion "to power the future of AI."
Priced to buy
Even though Cathie Wood is known for buying high-growth stocks -- and those are typically priced at premium levels -- if you follow her trading activity, you'll notice she uses value-investing tenets, too. After all, the bottom line for most successful investing is to buy low and sell high. She tends to scoop up stocks she believes in strongly when they fall and sell them when they're too expensive.
One example of a stock she's been selling recently is Palantir Technologies (NASDAQ: PLTR), which is up 476% over the past year and trading at a price-to-earnings (P/E) ratio of 597. TSMC, on the other hand, is up only 20% over the past year, but it trades at only 27 times trailing-12-month earnings, a slight discount to its one-year average.
Considering its excellent fundamentals, huge potential in tech, and safety, TSMC is the kind of stock that can appeal to a broad section of the investing community, and I highly recommend buying it.
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