Update on TSMC
This is a follow up to our last note on TSMC dated 15th October ‘21.
Since reporting their 3Q21 results, TSMC’s stock had been basically going sideways. There remain concerns amongst Wall Street analysts over management’s comments that inventories will remain somewhat elevated, and some are interpreting it to mean that a correction into 1Q22 is probable.
As mentioned, ATEC chooses to take management’s comments at face value, which is that in a post-Covid new norm, “just in Case” has taken over “just in time”.
The recent comments from Apple over the component shortages into 4Q21 highlight just how even the strongest of customers can be impacted if not prepared.
We also believe management when they said that even in the event of an inventory adjustment, that TSMC’s fabs will remain sold out for 2022.
ATEC sees building evidence that new demand could be emerging. One of which is the Metaverse. Shortly after Facebook (or rather META) revealed their plans, Microsoft followed up by launching their own Metaverse inside Teams, on an accelerated time scale. ATEC wonders how much more new computing capacity will be needed to support this trend if it does take off.
ATEC also thinks many more companies will have no choice but follow in the steps of these titans.
Another source of potentially outsized demand has to do with China’s decision to force all local enterprises onto their State-owned Cloud network just recently. ATEC does not know the magnitude of hyperscale data centres needed but given where China is in terms of Cloud, and since it is already a mandate from Beijing, we are willing to believe there is much upside to be had.
For TSMC, our technical framework tells us that a true breakout comes should the stock take out its US$125/6 level. This has proven to be formidable resistance against the stock since April ‘21. In this sense, last night’s higher volume move up was a good start. It could be a sign that more on the street are willing to look through the current impasse and recognise the potential new growth areas.
Well, I guess we will know soon enough. We set our alerts.
Good luck out there.
