Cathie Wood is best known for investing in emerging (if not speculative) technologies such as genomics and flying electric taxis. If you take even a cursory glance at her portfolio with ARK Invest, odds are you'll be unfamiliar with most of her largest positions.
From time to time, however, there are mainstream opportunities that even Wood can't pass up. Let's explore how she has been investing in artificial intelligence (AI) as of late, and more specifically, which semiconductor stocks she has had on her radar.
Cathie Wood has been on the hunt for chip stocks lately
ARK Invest offers investors eight different exchange-traded funds (ETFs), each of which focuses on a specific theme. According to ARK's website, the largest positions in the portfolios include Tesla, Coinbase Global, Roku, Palantir Technologies, Robinhood Markets, and Archer Aviation. Each of these companies has attracted a loyal following -- mostly from retail investors -- but Wood complements these positions with some more blue chip businesses.
When it comes to mainstream AI stocks, she owns positions in "Magnificent Seven" cornerstones Amazon and Alphabet. My guess? She's hedging her more-speculative positions with cloud hyperscalers that are already proving just how lucrative AI-powered services can be for their businesses.
Besides the above, however, I've noticed a little trend in Wood's buying patterns over the last couple of months. Specifically, ARK has been rounding out its AI investments with chip stocks. She appears to have rekindled her relationship with Nvidia during the Nasdaq sell-off earlier this year, and more recently, she bought the dip in Advanced Micro Devices (AMD).
Now, the growth investor just pounced on another AI chip stock, and I think this might be her most savvy move yet.
Image source: Getty Images.
Which monster AI semiconductor stock did Wood just scoop up?
According to recent trading data, ARK bought a combined 241,047 shares of Taiwan Semiconductor Manufacturing (TSM 0.51%) between May 19 and 20. This is notable because it's the first major purchase of Taiwan Semiconductor by ARK in years.
TSMC (as it's also known) specializes in foundry services. This is an important component of the chip development process because companies such as Nvidia, AMD, Broadcom, Amazon, Qualcomm, and many more all rely heavily on TSMC's fabrication process to bring their chip and system designs to life.
AI infrastructure spending is expected to reach multiple trillions of dollars by the next decade, so I'm confident that TSMC's services will remain in demand as companies continue buying chips and outfitting data centers. However, I see a more subtle reason to own the stock.
To me, TSMC is the engine powering the entire AI vehicle. Without its market-leading fabrication processes, Nvidia and its peers likely would not be able to fulfill demand for their chipsets. Given these dynamics, TSMC is in a rare position in that it stands to benefit as long as demand for graphics processing units (GPUs) and other semiconductor products remains strong.
In other words, the company's growth doesn't hinge on a particular chip design from a specific company. Rather, it can enjoy broader, more secular tailwinds from AI infrastructure.
Is the stock a buy right now?
Over the past year, shares of TSMC have gained 20% -- nearly double the gains seen across both the S&P 500 and Nasdaq Composite. While that might imply the stock is experiencing some outsize momentum, I still find shares attractively priced right now.
TSM PE Ratio (Forward) data by YCharts; PE = price to earnings.
Prior to the rebound in the stock market over the last few weeks, TSMC's forward price-to-earnings multiple (P/E) was hovering around its lowest levels in a year. What's more, even though the company's valuation multiples have been expanding as of late, its forward P/E of 20.8 is nearly identical to the average forward P/E across the S&P 500 index.
Given how strong AI tailwinds remain -- even during this pronounced period of economic uncertainty -- combined with TSMC's mission-critical role in bringing chipsets to life, I'm hard-pressed to think that the company's prospects are commensurate with that of the broader market.
To me, investors are heavily discounting the stock right now. I see shares as a no-brainer and a bargain. I think growth investors with a long time horizon should consider following Wood's lead and complement their chip stocks with a position in Taiwan Semiconductor Manufacturing.
