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Nov 28, 2021
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TSMC is the worlds largest semiconductor manufacturer, with total market share at 57%, and high-performance market share of >70%. They are based in Taiwan, but have recently started construction of new fabs in Arizona and Japan. They supply chips for Apple, AMD, NVDA, INTC.
Large Addressable Market, and Growing
The semiconductor space is currently a $550B industry, with total market growth of almost 25% YoY. This kind of growth rate for a mature industry is incredible, but semiconductors have a cyclical nature. Total semiconductor share is expected to grow to $800B by 2028, a CAGR of almost 10%.
Strong Macro Tailwind
Possible semiconductor legislation, and moves to green energy store, production,and EVs require semiconductors
Possible semiconductor supercycle
The age of the Metaverse, AI, 5G, EVs, self-driving, and robotics are upon us. These industries are growing at rapid pace and require custom chips, with TSMC provides. AMD/NVDA have skyrocketed this year on Metaverse news/great earnings, and TSMC is the main supplier of these high performance chips. The reason Micron bounced back recently is because people are realizing this cycle will last longer than they thought. AMD CEO Lisa Su (I love her) recently stated we are in a semiconductor megacycle. https://www.youtube.com/watch?v=8ZGwLas0MyY
TSMC is sitting on a PE of 29, and a forward PE of 25. They are currently growing at a CAGR of about 15%, with their gross margin at about 50%, which I suspect will be growing in the coming quarters. TSMC recently raised prices across the board 10-20%, which all their customers accepted. They know they have pricing power, as they sell literally everything they make. Companies fight over capacity. I have a feeling we may see more price increases in the future as their moat widens. They also pay a nice dividend.
Amazing Products, Wide Moat
TSMCs moat is widening every year. Frankly, Intel is fucked. They are 1-2 years behind on nodes, and this gap is growing. TSMC will spend more than 100 billion dollars in just the next 3 years on fabs, which they have plans for 3 new fabs this year. TSMC is starting mass production on 5nm nodes, while Intel is on 10nm (about 7nm compared to TSMC). Once you lose the performance crown, it's very difficult to take it back. In fact, Intel started to buy chips from TSMC this year.
Gyna. Over 50% of their capacity in based on Taiwan. If China decides to attack, they are fucked.
HOWEVER, tell me. If China attacks Taiwan, what do you think will happen to your stocks? The entire market will take a shit. It will be WW3. So while these are valid concerns, the chances of an invasion are very low, and if they do, money is gonna be the least of my problems. Anyways.
TSM is currently up 20% over the last year (YTD 4%), underperforming the market, with semiconductor ETFs up over 45% in the same period. They've traded in a range of 110-125 since February. Last week, they broke above 125 before the market took a fat shit. Options volume has been crazy and IV is on the rise, whales buying up tons of December calls.
The Play will be load up on Jan 23 125 calls. The IV is very low at about 30%, and a breakeven of 138 in 14 months. Just saying, we were over these prices in January. If you want more risk/more reward, Jan/March 125c will probably print. I bought in a 120 and will triple down at 110.
In Conclusion, TSM Jan 23 125c.