Wedgewood Trims TSMC Position as Semiconductor Crowded Trade Unwinds

Wedgewood Partners identified Taiwan Semiconductor Manufacturing Company Limited (NYSE: TSM) as a primary performance detractor in its third-quarter 2026 investor letter, citing the unwinding of a crowded semiconductor trade. The investment management firm reported that TSMC shares pulled back from a significant rally, contributing to the fund's net return of 2.5% for the quarter. This result compared with a 2.3% return for the Standard & Poor's 500 Index, 0.9% for the Russell 1000 Growth Index, and 2.6% for the Russell 1000 Value Index.

The firm noted that surging Treasury yields and macroeconomic headwinds pressured rate-sensitive stocks and market breadth, leading to underperformance in the equal-weighted S&P 500. Conversely, artificial intelligence resilience and mega-cap technology stocks drove the NASDAQ 100 to record highs. Despite rising inflation, energy price spikes, and higher interest rates, Wedgewood stated it is actively deploying capital into new positions, including Toll Brothers, Hermès, and TJX Companies.

In its analysis of TSMC, Wedgewood Partners described the semiconductor sector as a "crowded trade" during the second quarter, with much of the third-quarter underperformance reflecting the correction of those extremes. The firm confirmed it has trimmed its TSMC position several times during the multi-year rally, limiting individual positions to 10% of portfolios. Despite the recent pullback, TSMC remained the best-performing holding for Wedgewood year to date, driven by unprecedented AI-related capital expenditure spending.

The investor letter highlighted specific operational metrics for TSMC, noting that currency-neutral revenues jumped 36%, or 44% year over year. Gross margin dollars grew even faster, which Wedgewood attributed to high utilization and execution quality that positions TSMC as a central component of the global AI buildout. On October 16, 2026, TSMC shares closed at $412.61 per share. Over the preceding month, the stock declined by 7.31%, while remaining up 38.60% over the past year. The company holds a market capitalization of $1.94 trillion and has traded within a 52-week range of $266.82 to $487.47.

Database records indicate that 249 hedge fund portfolios held TSMC at the end of the second quarter, an increase from 234 in the previous quarter. While acknowledging the potential of TSMC as an investment, Wedgewood Partners expressed a view that certain other AI stocks offer greater upside potential with less downside risk. The firm's broader commentary also referenced questions regarding future capacity expansion as demand expands into CPUs and networking chips.