Opinions
Mark Grammer
Taiwan Semiconductor MFG.
TSM-N
DON'T BUY
Mar 22, 2018
Stock price when the opinion was issued
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Checks all the boxes for his firm: big insider ownership, beautiful balance sheet, high FCF, high ROIC, decent valuation, gigantic moat. No one can do what it does. Overhang: what if someday China invades Taiwan? It would be bad not only for TSM, but also every AI-type company. Guiding for 20% compound growth over next 5 years.
His firm has always stayed away from semis, as they're very cyclical and easily disrupted (though this name seems more insulated). Capital intensive. He's on the fence, but feels overall that the better way to play AI is to own the Mag 7.
Didn't they say a few years ago they would build a plant in the U.S., but permitting, labour and other factors would make it costs 6x more. Trump is kidding himself that the most strategic Taiwanese company will move their IP of strategic importance to the US. Think about it. A great company and major beneficiary of AI. ETFs drive the valuation.
Core holding in his global portfolio. Eaten INTC's lunch. Believes there's at least double-digit (10%) annualized upside over the next 5 years. Earnings will jump significantly this year with Arizona plant coming on stream. Growth over the next 2-3 years will be in the 15-20% annualized range.
Companies like NVDA must use TWM.
Undisputed leader in leading-edge foundries, and it's been that way for several years. Has anything changed? Now branching out to the US, which gives geographic diversification. This may be costly, but it has pricing power.
Another reason it's done well is because competitors have done poorly. But INTC is getting its act together, and Samsung will at some point. Down the road (and it may be a long road), there will be some additional competition. But TSM will still be the leader. A staple in most growth portfolios.
His choice in the space. It makes the chips for NVDA and a whole slew of others. It's more diversified. Valuation is cheaper. Much clearer growth path going forward over next few years.
NVDA has fallen, but it's not a cheap stock. Factored into the share price is a huge growth expectation. Just because share price has fallen on a high flyer, that doesn't necessarily make it cheap.
TSM is on the leading edge of the semiconductor industry. They use some of the most sophisticated equipment and can offer customers excellent products. There is some concern because the visionary CEO has retired and it too soon to tell whether new management will be as visionary. Also there is concern that the tech space has run too far and may be due for a pullback.