Strong Demand for AI Chips Boosted Taiwan Semiconductor Manufacturing Company Limited (TSM) in Q3

Baron Funds released its “Baron Durable Advantage Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund appreciated 5.6% (Institutional Shares) in the quarter compared to an 8.1% increase for the S&P 500 Index (the Index). YTD, the fund is up 13.6% compared to a 14.8% gain for the index. Three-quarters into 2025, U.S. large-cap equity investors are enjoying gains. The rally from the start of 2023 still looks strong in this quarter. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Baron Durable Advantage Fund highlighted stocks such as Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM). Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) manufactures, packages, tests, and sells integrated circuits and other semiconductor devices. The one-month return of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) was -4.24%, and its shares gained 48.68% of their value over the last 52 weeks. On November 17, 2025, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) stock closed at $282.01 per share, with a market capitalization of $1.463 trillion.

Baron Durable Advantage Fund stated the following regarding Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its third quarter 2025 investor letter:

"Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) contributed to performance during the quarter as shares rose 23.6%, driven by robust demand for AI chips. We retain conviction that TSMC’s technological leadership, pricing power, and exposure to secular growth markets, including AI and high-performance computing, automotive, 5G, and Internet of Things—will allow the company to sustain strong double-digit earnings growth over the next several years. We believe that while near-term uncertainty is heightened due to the evolving China U.S. geopolitical relations, TSMC’s competitive positioning in leading-edge semiconductor manufacturing remains unmatched with 90% market share (and 65% overall). TSMC’s unique positioning in the market is underlined by the company’s ability to raise prices as demand for its next generation nodes continues to be robust – this should also enable TSMC to offset any margin pressures from cost inflation or the headwinds from opening fabs in the U.S. at an accelerated pace. We also believe that TSMC will benefit from a long duration of growth as the adoption of AI continues to accelerate. Note that TSMC will benefit regardless of the ultimate market share split between NVIDIA, AMD, OpenAI, or Anthropic and whether application-specific integrated circuits would garner any significant market share. It’s the ultimate picks and shovels supplier to AI."

Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is in 9th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 187 hedge fund portfolios held Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of the second quarter, the same as in the previous quarter. In the third quarter of 2025, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) revenue increased 6% sequentially in in NT. While we acknowledge the potential of Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and shared the list of best aggressive growth stocks to buy. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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