Taiwan Semiconductor Manufacturing Company

INVESTMENT SUMMARY AS AT 31 DECEMBER 2023

TSMC is the largest semiconductor foundry in the world with ~60% market share. Importantly, at the leading edge, its market share is ~80%, providing the company with pricing power. The company is also a key enabler of AI as it manufactures chips such as GPUs, which should support a structural tailwind as AI gets integrated into numerous applications due to its utility.

The overall industry has also consolidated over time as semiconductor manufacturing has become more complex, especially at the leading edge. As such, only three players remain that can manufacture leading-edge chips – TSMC, Intel, and Samsung.

The foundry business is also highly capital intensive, creating a barrier to entry, and TSMC is currently spending >$30bn a year in capex. But thanks to management’s excellent execution, the ROEs generated are >25%. This has been consistent for over a decade, notwithstanding the perceived cyclicality of the industry.

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