The soaring stock of Taiwan Semiconductor Manufacturing Co TSM has led to restrictions on single-stock exposure for some investors, potentially forcing them to seek alternative investments.
What Happened: TSMC’s shares have surged by 42% in Taipei this year, largely due to its dominant position in the production of advanced chips for artificial intelligence, reported Bloomberg.
"The tricky part is that the size of the company is now so big in our benchmark that we cannot meaningfully overweight it, especially funds subject to UCITS which cap single stock exposure to 10%," said Zhikai Chen, head of Asian and Global EM Equities at BNP Paribas Asset Management. "It's prompting us to look at some other names that's currently one or two generations behind TSMC's technology to get more active exposures."
This has made TSMC a popular choice among fund managers. However, due to restrictions on single stock exposure, some funds may have to sell TSMC shares.
UCITS stands for "Undertakings for the Collective Investment in Transferable Securities," which is the regulatory framework set by the European Commission for managing and selling mutual funds within the region. Typically, a UCITS fund restricts investment in any single asset to 10%.
This has prompted investors to consider other companies in the sector, which are currently one or two generations behind TSMC’s technology, to maintain active exposure.
Why It Matters: TSMC’s stock surge is attributed to its strong position in the AI chip market. The company has seen a surge in analyst upgrades as the demand for AI chips continues to rise.
As many as 14 analysts have upgraded TSMC in the past two weeks. The company's stock has witnessed a 35% increase since the start of the year and a 60% rise over the past year.
However, the company has also expressed concerns about the high costs of new advanced chip machines, which could impact its future growth. Additionally, the global supply of high-performance memory chips is expected to remain constrained throughout 2024, driven by the soaring demand for AI technology, which could further impact TSMC’s future performance.
Despite these challenges, TSMC is making significant moves to expand its operations, including the recent announcement of an $11 billion chip plant in Germany, which is expected to start production in 2027.
Price Action: TSM closed Thursday at $152.23, marking a 2.15% decline. Nonetheless, it remains up 49.94% year-to-date, according to the data from Benzinga Pro.
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