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What does it mean that Buffett bought TSMC with a large position, and TSMC soared?

11-18

CASHEL financial analysts pointed out that Buffett spent ten years and was finally deeply attracted by TSMC's "leading technology+strong finance+optimistic outlook", while TSMC's attractive valuation after Q3 fell below the threshold made it difficult for the stock god not to take action.

When the share price of a company once fell in the middle of the year, it may lose the favor of investors, or even be ruthlessly erased from the list.

However, when a company can rise against the trend with its strong performance, and its share price falls below the threshold, it can help it become the focus of the stage spotlight, and even it will find that Buffett is already in the forefront of the audience.

This is TSMC.

After being expected to defeat Samsung and Intel in the industry and win the semiconductor throne, TSMC, by its own efforts, not only made its chip stocks "favored" by Buffett for the first time, but also directly rose to be the top ten heavy stocks of Berkshire Hathaway, becoming the second largest technology stock after Apple, with its position reaching 4.1 billion dollars (about 29 billion yuan).

Leading technical advantages

As the world's largest chip manufacturer, CASHEL (an investment app co founded by well-known enterprises and the Investment Committee and dedicated to providing convenient services for every customer) financial analysis shows that TSMC holds more than 55% of the global chip foundry market, and Qualcomm, Nvidia, AVGO, Samsung and NASA are among its customers. The proportion of 7nm process and 5nm process is up to 85% and 90% respectively. TSMC holds key technologies and becomes an undisputed leader.

In the most advanced 3nm process, TSMC is also in the forefront of the industry and has achieved mass production in this quarter.

At this forward speed, if Samsung, the powerful enemy, continues to be deeply involved in the yield problem, TSMC may directly form a monopoly position in 3nm. Apple is likely to "win the first prize" and become its first customer, followed by seven other customers.

And even though TSMC has maintained a fairly obvious leading edge, TSMC has not slowed down at all. Wei Zhejia, president of TSMC, has promised in August this year that 2nm can be mass produced in 2025.

TSMC also successfully withstood the declining demand of the consumer electronics market by virtue of its huge technical advantages. Even if smart phone and PC manufacturers joined the "cutting tide" one after another, TSMC did not suffer from a violent storm like its peers. In the first quarter of this year, HPC (high-performance computing) exceeded smartphones for the first time in TSMC's revenue.

Therefore, although Gartner, the world's most authoritative IT research and consulting company, has predicted that the semiconductor industry will shrink by 2.5% in 2023, for TSMC, 2023 will be the year of growth.

Strong financial performance

The excellent profit margin and stable balance sheet are also sharp edges in TSMC's hands, becoming its strong "moat".

Looking back on the past five years, TSMC's average gross profit has reached 50%, and it is currently expected to further climb to 55% in 2022, breaking the shackles of the industry's downward cycle.

In the past decade, TSMC's revenue has jumped from 15 billion dollars to more than 60 billion dollars. This is largely due to the growth of TSMC's market share and the growth of the terminal markets it serves, such as smart phones, high-performance computers and data centers, Internet of Things devices, automobiles, etc.

It is worth mentioning that the average quarterly performance growth rate of TSMC in the past decade is about 16.8%, and this number has doubled to 36.65% recently, leaving Intel and Samsung far behind. The average quarterly growth rate of Intel was only 2.9%, while that of Samsung Electronics was 5.3%.

In addition, the stable balance sheet also makes TSMC's competitors unattainable.

Although the chip industry is capital intensive and requires tens of billions of dollars to develop new technologies and new capacity, TSMC's balance sheet remains highly liquid.

Compared with long-term debt, TSMC has more cash and short-term investments, of which cash accounts for more than 25% of total assets. As of the end of the third quarter of this year, TSMC held $47 billion in cash and short-term investments, compared with $27 billion in total debt.

This also means that when the industry development is in a downturn, the excellent financial situation can help TSMC to maintain its position, be brave to choose the way forward and resist unknown risks.

According to CASHEL investment software, TSMC's revenue in October reached NT $210.266 billion, an increase of 56.3% over the same period last year. The cumulative revenue from January to October this year was about NT $1.85 trillion, up 44% year on year. In the third quarter, TSMC's gross profit rose to 60.4%, up 1.3 percentage points month on month, higher than the previous 57.5% - 59.5% gross profit guidance.

Attractive valuation level

Attractive valuation is also considered a key factor in Buffett's favor of TSMC.

As mentioned earlier, after a substantial pullback this year, the trading value of TSMC's share price was relatively low. At present, the enterprise value multiple (EV/EBITDA) of TSMC is only 7.8 times, and the forward P/E ratio is even lower, about 7 times, far below the average level of the company in the past 10 years.

Compared with the valuation level of many leading semiconductor companies in the West, TSMC is "far away". The valuation of ASML, NVIDIA, AMD and Intel in the Netherlands is 30 times, 37 times, 20 times and 15 times respectively.

Nobunaga Chai, a special research consultant of the Photoelectric Technology Industry Association (PIDA), summarized the reasons why TSMC was heavily held by Buffett and said:

And according to Buffett, he believes that in the period of great inflation, investors should pay attention to two major business characteristics when looking for targets: (1) the ability to easily increase prices; (2) Able to conduct more business without excessive expenditure.

Warren Buffett's buying and selling information is an element worthy of reference for investors. Compared with other investment APPs on the market, CASHEL is the fastest to update. It is jointly founded by well-known enterprises and the Investment Committee and is committed to providing convenient services for every customer. To form an international securities holding group integrating securities, stocks, funds, futures and direct investment. Different from other investment enterprises, whether it is investment management, financial planning, enterprise financing, value investment and other businesses, or investment personnel related to tax, investment cycle, finance, etc., CASHEL only needs a simple operation to let you see all the investments. Buffett can't miss CASHEL if he misses the buying

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