I have bought into this stock again as of July 2021 at a good price support level after its earnings call. I will be updating this in my next portfolio update.
I have sold off this stock as of End June 2021. The reason is only due to a need to rebalance my portfolio to make room for more value stocks. The below analysis are still relevant as of June 2021.
In the Portfolio Spotlight Series – i will be going through each holding in my portfolio and the selection criteria for its entry. Stocks are either
1. Great companies with consistent earnings, free cash flow, strong competitive moats. These are first team players
2. Potential growth companies with breakout earnings, growing competitive moats etc… these are hot youth prospects
3. Geographical / sector diversifications.. these are meant for diversification purpose and are reserves
The second in the Portfolio Spotlight series is TSM. TSM stands for Taiwan Semiconductor Manufacturing Company. I just initiated a position in this company and I have strong conviction in this stock short to mid term. TSM currently holds the position of Fullback in my team.
1)Consistent Revenue Growth
2)Consistent Free Cash Flow
3)Market Cap and Revenue Multiple Growth
TSM displays strong growth in its market cap and revenue multiple consistently for the past 5 years and more. Again, this shows strong competitive moats !
4) Consistent Net Income Multiple
5) Future growth
This last factor is fundamental analysis. Does TSM have future market growth driver(s) ? The answer is depends.
Currently TSM is the world’s top semiconductor foundry and is only one of 2 foundries (the other being Samsung) able to manufacture 5 and 7 nm chips using advanced EUV technology. EUV machines are very expensive (think upwards from US 120 Million per machine). As such, only dedicated foundries like TSM find it worthwhile to make such heavy investments. This creates very high barriers of entry for competitors.
Majority of tech companies requiring chips are customers of TSM (e.g. Apple , AMD, ARM, Nvidia), cementing its position as the world’s top foundry.
In terms of market growth driver(s), as long as TSM can continue to earn profits and sustain its competitiveness by investing in advance cutting edge technology to make 5 nm chips. No one can discount its ability in the future to produce even thinner chips below 5 nm due to Moore’s Law.
However in the long term horizon, i see increasing competition for TSM from foreign foundries like Samsung, SMIC and Intel . TSM is a Taiwanese company and currently it is no secret that China considers Taiwan part of its territory.
Hence TSM may get caught up in the growing US China Conflict. Long term profitability may be affected by political factors. Also, with China calibrating towards self-reliance in core technology such as semiconductors, SMIC – China’s largest foundry will expect to receive significant investments from its government in a bid to catch up with TSM. Hence long term wise, it depends on how the china us relations play out as well as how TSM management navigate the waters.