It's easy to think that institutional money managers somehow possess knowledge that's superior to the rest of the investment community. After all, these billionaires are called "smart money" for a reason.
What I find helpful, though, is when portfolio managers admit that they may have made a mistake. To me, this sheds light into how these investors think, and what strategies they may hone in order to mitigate making the same oversight.
Stanley Druckenmiller of the Duquesne Family Office admitted that he sold Nvidia stock far too early -- going as far as to say that he made a "big mistake" in doing so.
Since making these comments, Druckenmiller has definitely had multiple chances to get back on the Nvidia train. After all, Cathie Wood of Ark Invest did just that after she too sold the semiconductor darling prior to its epic rally a couple of years ago. Nevertheless, recent filings indicate that Druckenmiller may have accepted his decision with Nvidia and is seeking opportunity elsewhere.
Let's dig into the new artificial intelligence (AI) chip stock that the Duquesne Family Office just increased its stake in by a whopping 457%. Now may be a lucrative time to follow Druckenmiller's lead.
What AI stock did Druckenmiller just buy?
Per its most recent 13F filing, the Duquesne Family Office recently plowed into Taiwan Semiconductor Manufacturing (TSM 0.51%) stock. In the table, I've summarized the fund's position in TSMC over the last year:
| Category | Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | Q1 2025 |
|---|---|---|---|---|---|
| Shares owned | 0 | 0 | 57,355 | 107,515 | 598,780 |
Data source: Hedge Follow. Table by author.
Sometimes when a hedge fund increases its position in a particular stock, you can begin identifying a pattern by looking at prior filings. In this case, however, I don't think these dynamics really hold up.
A year ago, Druckenmiller's portfolio had zero exposure to Taiwan Semi. And while the firm did buy the stock during the previous two quarters, the position itself was relatively nominal. Looked at a different way, the most recent purchase of TSMC stock during Q1 is a clear outlier compared to the previous two quarters.
Why might Druckenmiller like Taiwan Semiconductor stock?
While Taiwan Semi might not receive nearly as much coverage as Nvidia, Advanced Micro Devices, or Broadcom, don't be fooled by its quiet reputation.
Companies such as Nvidia, AMD, Broadcom, Amazon, Qualcomm, Apple, and many more all design or buy chips and integrated network equipment for AI data centers. Where TSMC comes into play is that they actually manufacture the equipment that is designed by these companies.
So while Nvidia and its cohorts get to sell the best shovels that money can buy during the AI gold rush, Taiwan Semi is in the background actually making the shovels. In other words, a good chunk of the AI chip opportunity hinges on TSMC's ability to manufacture these products.
What's even more encouraging is that Taiwan Semi is investing heavily into infrastructure in an effort to maintain its lead over the competition. The company has already built factories here in the U.S., and has plans to double down on this initiative over the next few years. These investments are strategic, as they should allow for more efficiencies and improved supply chain logistics with domestic chip partners -- a strategy that I think will further cement TSMC's market share lead.
TSM Revenue Estimates for Current Fiscal Year data by YCharts
Wall Street seems to be bullish on Taiwan Semi, too. Per these estimates, analysts are forecasting impressive growth across both revenue and profits for TSMC over the next few years. I see these projections as a proxy for continued robust demand for AI chips, and Taiwan Semi's ability to win business over the competition such as Intel or Samsung.
Image source: Getty Images.
Is Taiwan Semi stock a buy right now?
Right now, Taiwan Semiconductor's shares trade at a forward price-to-earnings (P/E) multiple of 20.8 -- essentially identical to its five-year average. Given how influential TSMC's foundry services are to the broader chip narrative, it's a little perplexing to see the company's forward valuation ratios trading in line with levels prior to the AI revolution.
I think the recent valuation compression in TSMC can be attributed to two primary factors: uncertainty around tariff policies and geopolitical tensions with China.
TSM PE Ratio (Forward) data by YCharts
While I'll acknowledge both as potential risk factors, I think the bearish narrative surrounding each of them is overblown. Despite ongoing trade negotiations, demand for AI infrastructure remains incredibly high. These dynamics bode well for TSMC. Moreover, if management were questioning the long-term growth trajectory of the company, I'd be suspicious that it would be looking to expand its footprint beyond Asia.
To me, Taiwan Semiconductor is humming along just fine -- and I don't see its tailwinds slowing down anytime soon. For these reasons, investors may want to follow Druckenmiller's lead and take advantage of Taiwan Semi's attractive price levels right now.
More importantly, unlike what Druckenmiller did with Nvidia, TSMC looks primed for years to come, and growth investors may want to hold on tight for the long haul.
