Investors on Wall Street are frequently regarded as having unique foresight that distinguishes them from typical market participants. Although many institutional investors utilize sophisticated algorithms, their trading activities aren't entirely concealed from the public eye.
According to regulations from the Securities and Exchange Commission (SEC), investment firms managing at least $100 million in equities must submit a 13F form every quarter. These disclosures indicate which stocks were bought and sold, granting ordinary investors a rare peek at the movements of so-called "smart money." One such investor I monitor is Stanley Druckenmiller, who manages the Duquesne Family Office.
Earlier this year, Druckenmiller sold Duquesne's entire holding in data analytics company Palantir Technologies. At the same time, he has gradually increased his investment in Taiwan Semiconductor Manufacturing ( TSM 2.20%) over the last four quarters.
Let's explore why reducing exposure to Palantir may have been a smart move—and why shifting capital to Taiwan Semi could deliver better long-term results.
Is it wise to sell Palantir shares now?
Over the past three years, Palantir has become a key player in the AI transformation. The debut of its Artificial Intelligence Platform (AIP) has driven exceptional demand for its Apollo, Gotham, and Foundry products, each of which is deeply embedded within major corporations and government entities. Palantir's rapid ascent has been impressive, presenting investors with a compelling story beyond the well-known "Magnificent Seven."
PLTR PS Ratio data by YCharts
Nevertheless, Palantir's valuation stands out as a significant issue. With a price-to-sales (P/S) ratio of 126, its stock trades not just above other software firms, but even surpasses the extremes seen during the dot-com era.
Though Palantir still offers considerable long-term growth potential, its stock appears overheated at present. Druckenmiller's decision to scale back his stake in Palantir demonstrates careful risk control—a pattern he's shown with this stock before.
Image source: Getty Images.
What could attract Druckenmiller to TSMC shares?
For a long time, investors have heard about major technology companies spending vast sums on chips and networking gear to power future data centers. This has created a clear tailwind for Nvidia and Advanced Micro Devices, both of which supply the GPUs essential for generative AI technology.
AMZN Capital Expenditures (TTM) data by YCharts
What tends to get less attention is that the designs from Nvidia, AMD, and others ultimately rely on Taiwan Semiconductor for manufacturing. Put simply, TSMC is the company physically building these chips. The analogy I prefer is that Taiwan Semi is providing the shovels for the ongoing AI gold rush.
The story doesn't stop at generative AI. Emerging technologies in autonomous systems, robotics, and quantum computing are just getting started. As these innovations move toward commercial scale, TSMC's unmatched manufacturing strengths are likely to remain essential for AI infrastructure development.
I believe these enduring trends are exactly what Druckenmiller is seeking: a business not only involved in the AI revolution, but positioned as a core pillar of its future progress.
Is now a good time to buy Taiwan Semi stock?
At first blush, Taiwan Semi stock doesn't appear "cheap," trading at a forward price-to-earnings (P/E) ratio of 26. The current valuation is expanding, driven by optimism in the tech sector.
TSM PE Ratio (Forward) data by YCharts
Yet looking deeper, investors like Druckenmiller seem to understand TSMC's critical function in the AI supply chain. Despite this, the company is still overshadowed by more high-profile competitors. Some may also hesitate to invest in Taiwan Semi due to possible geopolitical risks involving China.
While these issues are legitimate, I think the market's view of Taiwan Semi's long-term prospects is somewhat skewed. In other words, factors like these, along with hype around other chipmakers, are overshadowing what is otherwise a strong investment case.
From my perspective, TSMC is perhaps the most important company at the heart of the AI boom. For those with a long-term view, Taiwan Semi appears to be an obvious buy-and-hold as artificial intelligence continues to advance.
