We recently published a list of 10 Best Manufacturing Stocks To Buy Now. In this article, we are going to take a look at where Taiwan Semiconductor Manufacturing Company Limited. (NYSE:TSM) stands against other best manufacturing stocks to buy now.

The manufacturing sector stands as a cornerstone of the U.S. economy, significantly contributing to the nation’s gross domestic product (GDP), employment, and technological innovation. According to the National Institute of Standards and Technology (NIST), in 2023, the U.S. manufacturing sector contributed approximately $2.3 trillion to the nation’s Gross Domestic Product (GDP), accounting for about 10.2% of the total U.S. GDP. Additionally, data from the U.S. Bureau of Labor Statistics (BLS) indicated that as of January 2025, the manufacturing sector employs approximately 12.76 million individuals.

Reshoring and Strategic Shifts:

In recent years, the sector has experienced notable trends that are reshaping its landscape. One prominent development is the movement towards reshoring—the practice of bringing manufacturing operations back to the United States. Geopolitical tensions, such as Russia’s invasion of Ukraine, ongoing trade frictions with China, and the aftereffects of the COVID-19 pandemic, have exposed vulnerabilities in global supply chains, prompting companies to reconsider the risks of offshoring. The decline in China’s factory activity and the country’s economic slowdown have also contributed to this shift, as firms seek to reduce their dependency on a single manufacturing hub. In fact, according to a report by CNBC, mentions of “reshoring” in the broader market’s earnings transcripts surged by 128% in the first quarter of 2023 compared to the previous year, outpacing even the rise in discussions about artificial intelligence.

Market Performance and Investment Trends:

Manufacturing stocks have shown resilience over the past year. Despite challenges like inflation and shifting interest rates, the sector has benefited from strong domestic demand and strategic investments in technology. In 2024, greater asset price dispersion across securities, sectors, and countries created strong alpha opportunities for hedge funds. This market dynamic coincided with a significant increase in corporate profits within the U.S. manufacturing sector, which experienced a five-year compound annual growth rate of 11.1%, as reported by NIST.

Outlook and Future Growth Prospects:

The outlook for the U.S. manufacturing sector is cautiously optimistic. Despite ongoing challenges, a focus on innovation and supportive policies position the sector for steady growth. According to a report by Reuters, in January 2025, manufacturing expanded for the first time since 2022, with the ISM manufacturing PMI rising to 50.9—the highest reading since September 2022. Given this, we will take a look at some of the best manufacturing stocks.

Our Methodology

For this list, we first scanned Insider Monkey’s database of 900 hedge funds as of the third quarter of 2024. Our focus was on selecting manufacturing companies across various sub-sectors within the industry, including industrial equipment, automotive, aerospace, and consumer goods. From this pool of companies, we identified the 10 best manufacturing stocks and ranked them in ascending order based on the number of hedge funds holding stakes in them at the end of Q3 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A close-up of a complex network of integrated circuits used in logic semiconductors.

Taiwan Semiconductor Manufacturing Company Limited. (NYSE:TSM)

Number of Hedge Fund Holders: 158

Taiwan Semiconductor Manufacturing Company Limited. (NYSE:TSM) is the world’s largest contract chipmaker, renowned for its advanced semiconductor technologies.

In the fourth quarter of 2024, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) reported net revenue of approximately $26.45 billion, marking a 38.8% year-over-year increase, driven by strong demand for artificial intelligence (AI) and high-performance computing applications. The company also generated a free cash flow of about $7.8 billion in Q4, up from $6.8 billion in Q4 2023. The company expects continued growth in AI-related chip demand, projecting that revenue from AI-related servers and processors will double in 2025.

Despite a recent earthquake in southern Taiwan causing some production disruptions, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) expects first-quarter 2025 revenue to be between $25 billion and $25.8 billion, in line with its guidance.

Taiwan Semiconductor Manufacturing Company Limited. (NYSE:TSM)’s strategic importance in the semiconductor industry has attracted significant interest from institutional investors, with approximately 158 hedge funds in Insider Monkey’s Q3 2024 database holding positions in the company. Simon Coles of Barclays recently reiterated a “Buy” rating on the company, raising the price target from $240 to $255, indicating a potential upside of approximately 23.71% from the current price.

Overall, TSM ranks 1st on our list of best manufacturing stocks to buy now. While we acknowledge the potential for TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.