Taiwan Semiconductor Manufacturing Company (TSM) Limited Continues to Deliver Stellar Financial Results

In the second quarter of 2026, the Baron Fifth Avenue Growth Fund reported a strong performance, gaining 24.6% (Institutional Shares) and outperforming major indices such as the Russell 1000 Growth Index (16.7%) and the S&P 500 (15.2%). Over the year, the fund increased by 11.7%, surpassing its benchmarks. The previous year's 10.4% decline in Q1 due to geopolitical tensions was followed by a rebound in Q2, driven by a cease-fire and falling oil prices, with a 24.6% gain.

The fund's success can be attributed to proficient stock selection, which contributed 940 basis points, while sector allocation impacted performance negatively by 152 basis points. As a leading contract chip manufacturer, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) played a significant role in the fund's outperformance, being the world's largest producer of advanced semiconductors for major global technology companies.

In its Q2 2026 investor letter, the fund highlighted TSMC's stellar financial results, driven by AI demand and revenue growth of 35% year-on-year. TSMC's earnings per share (EPS) grew by 58%, with impressive gross margins of 66% and operating margins of 58%. The company's focus on high-performance computing now accounts for the majority of its business, and as AI demand consumes leading-edge capacity, PC and smartphone production is shifting to older technology nodes.

The management team raised its full-year outlook for TSMC and increased capital spending to accommodate the persistent demand, which remains well above available supply. The fund expressed long-term conviction in TSMC, recognizing its leading-edge manufacturing monopoly, pricing power, and technology roadmap as durable advantages supporting sustained growth.

Ranked 6th on the list of 40 most popular stocks among hedge funds heading into 2026, TSMC held by 249 hedge fund portfolios at the end of Q2 2026, compared to 234 in the previous quarter. Despite acknowledging TSMC's potential as an investment, the fund believes other AI stocks offer greater upside potential with less downside risk.