Notes on Semiconductors
Semiconductor chips remain in the spotlight of late.
The capacity constraint faced by all foundries globally threatens to drag the pace of digitisation, even as more and more nations are jumping on the bandwagon.
This is why the White House has decided to put its weight behind this issue. This is also part of the reason why Intel recently decided to create a Foundry business.
With this backdrop in mind, ATEC is of the view that any plausible solution to the current situation must intricately involve TSMC. The stock had stalled since mid-Feb, in part reflecting fears of Intel entering the industry as a competitor, and talks of ‘Peak Cycle’.
ATEC is of the view that the street is not giving TSMC enough credit for the sweet spot it finds itself in today. For it is through unrelenting discipline and exact execution that the company was able to un-root Intel from the top spot as the top manufacturer of advanced semiconductor chips.
TSMC also stands at the centre of the secular shift away from the x86 architecture (championed by Intel) towards ARM-based computing , and is already starting to eat at Intel’s most profitable segment — data centre servers microprocessors (see Nvidia’s latest announcement).
This trend has several more years’ of runway still.ATEC believes TSMC’s recent bump-up in capex (2021 up to US$31 billion from US$28 bn previously) should therefore be viewed with much optimism. For TSMC only builds (substantial) capacity for sustainable commitments, never just for the pursuit of market-share.
ATEC will be watching the stock with interest as their upcoming earnings meeting approaches. A positive swing in sentiment should take the stock above its recent consolidation area, which will indicate the start of a new uptrend.
Given its enviable position as mentioned, ATEC thinks it should be easy to see the name trade in the high 20s PE multiples for 2022/23 time-frames even.
