Warren Buffett just invested in the world's most important company!
You've never heard of it, but it's so important that if it stops working, the whole world will collapse
Here's why Buffett invested in Taiwan Semiconductor Manufacturing Co:
You've never heard of it, but it's so important that if it stops working, the whole world will collapse
Here's why Buffett invested in Taiwan Semiconductor Manufacturing Co:
Berkshire Hathaway bought around 60M shares worth $4.1B of the world's largest contract chip maker
β Taiwan Semiconductor Manufacturing Co.
This amount of investment accounts for 1.4% of Berkshire Hathaway's total portfolio.
β Taiwan Semiconductor Manufacturing Co.
This amount of investment accounts for 1.4% of Berkshire Hathaway's total portfolio.
Now because the greatest value investor of all time made a huge investment in TSMC and the foundry market
β there must be something extraordinary about them.
So, without wasting more words, let's understand some basics of the semiconductor industry and TSMC.
β there must be something extraordinary about them.
So, without wasting more words, let's understand some basics of the semiconductor industry and TSMC.
First, What is a semiconductor chip (SC)? SC is a component found in every piece of electronic device on our planet earth
β designed to manage & control the flow of current in every piece of equipment.
It receives processes & stores a large amount of data in lesser time.
β designed to manage & control the flow of current in every piece of equipment.
It receives processes & stores a large amount of data in lesser time.
It is the brain of modern electronics.
Our reliance on electronic items has been increasing because they're integrated with all the products & services that we use today
β computing, healthcare, telecom, etc., and various other techs like 5G, IoT & AI.
Our reliance on electronic items has been increasing because they're integrated with all the products & services that we use today
β computing, healthcare, telecom, etc., and various other techs like 5G, IoT & AI.
And this is the basis of the solid growth of SC industry.
Gordon Moore, Co-founder of Intel- observed that the no. of transistors in a dense IC double about every 2 years. This is called Moore's law.
It suggests exponential growth of chip efficiency and a relative fall in cost.
Gordon Moore, Co-founder of Intel- observed that the no. of transistors in a dense IC double about every 2 years. This is called Moore's law.
It suggests exponential growth of chip efficiency and a relative fall in cost.
A single smartphone today has far more computing power and costs way less than the computers used by NASA to land a person on the moon in 1969
β all because of semiconductors.
Now, do you know that the global market size of the SC industry was around $528B in 2021!!
β all because of semiconductors.
Now, do you know that the global market size of the SC industry was around $528B in 2021!!
And now with the rising demand, it is all set to become
β a trillion-dollar industry by 2030.
This shows that the semiconductor industry is highly investable in the future. It is just like oil production 60-70 years ago when there were fewer cars & planes
β a trillion-dollar industry by 2030.
This shows that the semiconductor industry is highly investable in the future. It is just like oil production 60-70 years ago when there were fewer cars & planes
β and the world needed the growth of the oil industry.
After understanding the significance of the semiconductor industry, now let's turn to the biggest co. of this industry- TSMC with approx. $422B.
It manufactures semiconductors exclusively for its global customers.
After understanding the significance of the semiconductor industry, now let's turn to the biggest co. of this industry- TSMC with approx. $422B.
It manufactures semiconductors exclusively for its global customers.
TSMC does not market any product under its own name. And that's why it has long gone unnoticed!!
It produces more than 12,000 products for more than 500 clients including Apple, Intel, Qualcomm, etc.
It produces more than 12,000 products for more than 500 clients including Apple, Intel, Qualcomm, etc.
Warren Buffett looks at these 3 things majorly before investing in a stock:
πΈ MOAT- ability to maintain competitive adv.
πΈ VALUE- financials of a co.
πΈ MARGIN OF SAFETY- market value should be less than the intrinsic value
And guess what? TSMC is remarkable on all 3 fronts.
πΈ MOAT- ability to maintain competitive adv.
πΈ VALUE- financials of a co.
πΈ MARGIN OF SAFETY- market value should be less than the intrinsic value
And guess what? TSMC is remarkable on all 3 fronts.
πΈ MOAT- TSMC got 3 competitive advantages.
1. Pace of innovation- TSMC has an incredible pace of innovation. It is the dominant manufacturer of the 10nm-5nm chip which is the most advanced chip in the world.
Samsung is its only rival in this segment.
1. Pace of innovation- TSMC has an incredible pace of innovation. It is the dominant manufacturer of the 10nm-5nm chip which is the most advanced chip in the world.
Samsung is its only rival in this segment.
It is one of the most capital extensive co. on this planet as it has invested $44B in property & plant equipment in 1 year.
This is all because of the co. acknowledges its need to build this large capacity to fulfill the ever-increasing demand for its products.
This is all because of the co. acknowledges its need to build this large capacity to fulfill the ever-increasing demand for its products.
Moreover, it invested billions of dollars in building 3nm chips on Apple's demand for its M2-powered MacBook Pro.
This 3nm chip
- speeds up the device performance without draining the battery,
- is expected to cater to the 5G smartphones market &
- other electronic products.
This 3nm chip
- speeds up the device performance without draining the battery,
- is expected to cater to the 5G smartphones market &
- other electronic products.
And because TSMC has monopolized the market, it commands a higher price.
2. LOW-COST PRODUCER- There are 3 reasons for TSMC to have a low cost.
a. Economies of scale- The co. has built 20 state-of-the-art chipmaking facilities to drive down the per-unit cost of production.
2. LOW-COST PRODUCER- There are 3 reasons for TSMC to have a low cost.
a. Economies of scale- The co. has built 20 state-of-the-art chipmaking facilities to drive down the per-unit cost of production.
b. No diversified locations- TSMC is soo efficient and profitable because it has concentrated its entire manufacturing line in Taiwan.
All the major sites are sufficiently close enough to mobilize their engineers in case of emergency.
All the major sites are sufficiently close enough to mobilize their engineers in case of emergency.
c. Govt. support- Govt. of Taiwan has subsidized its resources like land for long-term use.
3. HIGH BARRIER TO ENTRY- All foundries cost around $10-20B and take 3-5 years to build.
This discourages all organizations to enter and invest in this industry.
3. HIGH BARRIER TO ENTRY- All foundries cost around $10-20B and take 3-5 years to build.
This discourages all organizations to enter and invest in this industry.
And on top of that, building more advanced versions of a chip requires more challenging development and bigger investment- in new production capacity.
This drives most of the chipmakers out of the advanced segment of the market.
This drives most of the chipmakers out of the advanced segment of the market.
πΈ FINANCIALS- Financials of this co. Is stronger than any other semiconductor co. in the world.
Revenue and profits are all green with $57.22B and $21.35B respectively in 2021.
Revenue and profits are all green with $57.22B and $21.35B respectively in 2021.
πΈ MARGIN OF SAFETY- the marker value of TSMC is lesser than its intrinsic value.
It means the stock is undervalued and 20.31% less than its 52 weeks high.
It means the stock is undervalued and 20.31% less than its 52 weeks high.
In short, there is absolutely no critical supplier for tech giants worldwide with demand for the most advanced chips
β other than TSMC.
So as we're getting more technically advanced, we're relying more on TSMC's products.
β other than TSMC.
So as we're getting more technically advanced, we're relying more on TSMC's products.
It would not be an overstatement that every electronic equipment used- from data centers to fighter jets- in the world
β has something from Taiwan Semiconductor Manufacturing Co. in it.
β has something from Taiwan Semiconductor Manufacturing Co. in it.
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