I might be a retail idiot but I can read a balance sheet and the math on TSMC makes the rest of the sector look delusional. Everyone is piling into Nvidia and Broadcom at 40x-60x earnings but they seem to forget that none of them exist without TSMC. The entire AI revolution runs through Taiwan.
Here is why I’m loading up:
A. It’s trading at a forward P/E of ~28 while locking in 50% margins.
B. The PEG Ratio is sitting at ~1.0. You literally cannot find that kind of growth-at-a-reasonable-price ANYWHERE else in big tech.
The (we never know when or if) China Risk discount is overrated. My take: If China invades, your Nvidia stock goes to zero anyway. The entire sector collapses. So why pay a 100% premium for Nvidia when the geopolitical downside is exactly the same?
(This is a big if)…
What if China attacks Taiwan and attempts to control TSMC and the AI supply chain due to frustration over always lagging behind to US in the AI race and make it supply only to China?
Yeah, this is just an imaginary scenario for now, but it has a 5-10% of happening in the future as I see China attempting to sabotage the AGI progress of the US…(After all, it’s a race between China and the US to win the AI race).
The good thing is Intel is building its Foundry business for the US and there are lot of startups that are researching on tech to build Silicon wafers using light tech, instead of EUV(which ASML dominates currently).
Why am I saying this?
While the Balance sheet shows you the health of the company and its fundamentals, it doesn’t show you what the company is building towards, in short, its future potential (or the future business/products) that may open up due to R&D, tech advancement, or simply through acquisitions.
PS: Not trying to say TSMC is not good. Everyone agrees it’s good, I’m just trying to add a bit of context as to why just the balance sheet is sometimes not always the complete answer. Funamental research is just one key point. Most growth investors chase tech companies for its future potential.
Also, the way I see it, unless China attacks Taiwan, Nvidia will never go to zero. Hell, even if it attacks…US will figure something out. We are talking about trillion-dollar giants that are wealthier than most countries on this planet. If these won’t survive, nothing can on this planet.