Billionaire David Tepper's Strategic Shift: Betting on TSMC's AI Chip Manufacturing Dominance

Key Points

• Tepper has strategically reduced positions in Broadcom and Meta to invest directly in the foundry market supply-demand gap
• TSMC holds a critical position in the AI chip supply chain with demand for advanced nodes significantly exceeding manufacturing capacity
• With unrivaled scale and process technology leadership, TSMC is uniquely positioned to benefit from AI infrastructure expansion
• Strategic analysis suggests focusing on the chip manufacturing bottleneck rather than downstream AI applications

Billionaire David Tepper's Appaloosa Management has made a decisive strategic pivot within the AI ecosystem. Known for his diversified approach spanning technology stocks and undervalued cyclical sectors, Tepper acts with conviction when identifying structural market opportunities.

His latest strategic move involves divesting his position in Broadcom (NASDAQ: AVGO) and reducing his stake in Meta Platforms (NASDAQ: META) by 27% while substantially increasing his position in Taiwan Semiconductor Manufacturing (NYSE: TSM) by 279.6% during the second quarter of 2025.

This recalibration doesn't represent a retreat from artificial intelligence but rather a more focused approach targeting the fundamental supply constraint in the AI value chain. TSMC manufactures the world's most advanced semiconductor components for every major technology leader, including Nvidia, Advanced Micro Devices, Apple, Alphabet, and Meta Platforms. This positions TSMC as the essential infrastructure provider without which no company can scale AI models or expand data center operations.

Tepper's strategic insight correctly identifies that semiconductor manufacturing capacity represents the critical bottleneck in AI development, granting TSMC exceptional pricing power in the market. This strategic positioning suggests significant long-term investment potential.

Strategic Analysis of Tepper's Portfolio Restructuring

While both Broadcom and Meta represent quality technology investments, Tepper's second-quarter moves indicate he perceives structural limitations ahead. Broadcom has built a comprehensive portfolio including custom AI accelerators, high-performance networking hardware, and enterprise software solutions—all critical components in global AI infrastructure development.

Financial projections remain strong for Broadcom, with analysts forecasting 21% year-over-year revenue growth to $15.8 billion and 33.9% growth in non-GAAP earnings per share to $1.66 for the third quarter of fiscal 2025. Nevertheless, Appaloosa's complete divestiture suggests Tepper sees greater strategic value in controlling the semiconductor manufacturing bottleneck rather than competing in the crowded downstream AI application space.

Meta Platforms continues its aggressive investment in AI infrastructure while maintaining dominance in social media with 3.4 billion daily active users. The company reported impressive Q2 2025 results with revenue increasing 22% year-over-year to $47.5 billion and operating income surging 38% to $20.4 billion.

However, digital advertising remains inherently cyclical and dependent on broader economic conditions. Simultaneously, Meta's substantial capital expenditures on AI infrastructure may constrain near-term financial performance. Tepper's 27% reduction of Meta holdings reflects these strategic concerns.

TSMC's Strategic Value in the AI Supply Chain

Tepper's substantial increase in TSMC holdings during Q2 reveals his strategic thesis focusing on advanced semiconductor manufacturing as the critical constraint in AI development.

The financial data supports this strategic positioning. In Q2 2025, TSMC reported a 54% year-over-year revenue increase to $30.1 billion, while maintaining an impressive 49.6% operating margin. Management now projects approximately 30% revenue growth for 2025 in USD terms.

High-performance computing has emerged as the dominant demand driver, accounting for nearly 60% of sales, with smartphones contributing 27%, and automotive and IoT sectors each representing 5%. Advanced manufacturing nodes (7-nanometer and below) generated 74% of wafer revenue, demonstrating the market's shift toward cutting-edge semiconductor technology, particularly for AI applications.

TSMC management has explicitly acknowledged severe supply constraints for 3nm and 5nm chips relative to surging AI market demand. The company has implemented strategic capacity reallocation, converting older node capacity to newer processes—an initiative enabled by their innovative "giga fab cluster" approach, which co-locates multiple fabrication facilities to share infrastructure and tooling resources.

The company's advanced packaging technology, Chip-on-Wafer-on-Substrate (CoWoS), faces similarly overwhelming demand that significantly exceeds available capacity. This supply-demand imbalance is so pronounced that management is currently focused merely on "narrowing the gap" rather than achieving equilibrium—indicating sustained pricing power for the foreseeable future.

TSMC's Technology Leadership and Strategic Roadmap

TSMC continues to innovate at an accelerated pace to address the performance requirements and cost optimization needs of AI data centers. The company plans to commence volume production of 2nm chips in late 2025, offering superior performance and efficiency compared to current 3nm technology. The 2nm node is also expected to deliver enhanced profit margins relative to 3nm production.

Looking further ahead, TSMC has outlined a comprehensive technology roadmap including volume production of N2P and A16 chips in the second half of 2026, with each generation delivering incremental performance and power efficiency improvements. By 2028, the company plans to begin volume production of even more advanced A14 node technology. This strategic innovation pipeline ensures TSMC will maintain its dominant position in the global semiconductor foundry market for years to come.

Despite these strategic advantages and strong financial performance, TSMC trades at a relatively reasonable 23.8 times forward earnings—below the 31.5 median multiple for the broader technology sector. Given TSMC's robust financial position, strategic market dominance, and conservative valuation, the company appears strategically positioned for significant growth in coming years. Individual investors should consider Tepper's strategic insight when evaluating semiconductor investments in 2025.