In this post, we take a closer look at semiconductor giant TSMC, discussing its recent results, the threat from competition and China, and its growth prospects.
It’s worrying how people dismiss geopolitical risk so readily. That was the case in Europe before Russia’s full scale invasion of Ukraine. The abrupt and shocking geopolitical reversal in Europe led to a drastic reevaluation of the associated risk, but by then it was too late for anything but a rushed, reactive response. Many people lost a lot of money.
I am definitely not trying to dismiss the geopolitical risks here, but rather acknowledge and discuss them, explaining why I am not overly worried at this point.
As always, a potential escalation in Taiwan will lead to significant geopolitical challenges, not only for TSMC but for pretty much all sectors globally.
Are you considering TSMC or already a shareholder? Or avoiding it because of geopolitical risks?
Apologies for not responding until now. I’m just an occasional user of Substack.
TSMC is an incredibly successful company. I would definitely buy the stock if China were not so belligerent.
Yes all sectors would be hit if China attacks Taiwan, but TSMC would be disproportionally. Immediately, Taipei markets would close and capital controls imposed.
At the time of your article I would have expected a naval blockade at chokepoints such as the Strait of Malacca as the most probable response of the U.S. Now, I think Trump would back off, spinning it as America First. Beijing would occupy Taiwan within months or even weeks, and expropriate whatever is left of TSMC.
Either way, TSMC shares would effectively go to zero.
It’s the most glaring example of geopolitical risk not being priced into shares, however, there are other worrying cases. Many German multinationals are too exposed thanks to their large investments in China. The losses would be massive and would hit Europe hard.
I admire companies that are paying attention and diversifying their exposure - such as moving parts of their supply chain to India or SE Asia.
I get your worries. However, I do not see a scenario where Trump would drop Taiwan due to its importance to pretty much all U.S. sectors, including defense.
But yes, the risks you lay out are reasonable and need to be considered when investing in TSMC.
It’s worrying how people dismiss geopolitical risk so readily. That was the case in Europe before Russia’s full scale invasion of Ukraine. The abrupt and shocking geopolitical reversal in Europe led to a drastic reevaluation of the associated risk, but by then it was too late for anything but a rushed, reactive response. Many people lost a lot of money.
Hi Ruisla, thanks for your comment.
I am definitely not trying to dismiss the geopolitical risks here, but rather acknowledge and discuss them, explaining why I am not overly worried at this point.
As always, a potential escalation in Taiwan will lead to significant geopolitical challenges, not only for TSMC but for pretty much all sectors globally.
Are you considering TSMC or already a shareholder? Or avoiding it because of geopolitical risks?
Apologies for not responding until now. I’m just an occasional user of Substack.
TSMC is an incredibly successful company. I would definitely buy the stock if China were not so belligerent.
Yes all sectors would be hit if China attacks Taiwan, but TSMC would be disproportionally. Immediately, Taipei markets would close and capital controls imposed.
At the time of your article I would have expected a naval blockade at chokepoints such as the Strait of Malacca as the most probable response of the U.S. Now, I think Trump would back off, spinning it as America First. Beijing would occupy Taiwan within months or even weeks, and expropriate whatever is left of TSMC.
Either way, TSMC shares would effectively go to zero.
It’s the most glaring example of geopolitical risk not being priced into shares, however, there are other worrying cases. Many German multinationals are too exposed thanks to their large investments in China. The losses would be massive and would hit Europe hard.
I admire companies that are paying attention and diversifying their exposure - such as moving parts of their supply chain to India or SE Asia.
I get your worries. However, I do not see a scenario where Trump would drop Taiwan due to its importance to pretty much all U.S. sectors, including defense.
But yes, the risks you lay out are reasonable and need to be considered when investing in TSMC.
I'm long TSM with some LEAPS. Think it has room.
I have some write-ups about potential Chinese chip competitors (https://emergingmarketskeptic.substack.com/t/china scroll way down). The problem is that the main challenger SMIC's origins lies with stolen TSMC technology "that led to a several year court battle ultimately won by the latter while hamstringing the former’s ability to come up with it’s own technology..." https://emergingmarketskeptic.substack.com/p/smic-chinas-most-important-chipmaker
I included your write-up in my Emerging Market Links + The Week Ahead (April 29, 2024) for today: https://emergingmarketskeptic.substack.com/p/emerging-markets-week-april-29-2024
This is great!
Thanks!