Warren Redlich
AI Stocks Report, Equity & Options Strategies
TSMC looks underpriced for the AI growth ahead, along with Google and Nvidia, and a crash is not inevitable. The risk is the supply chain: AI stocks are priced for uninterrupted exponential scaling that depends on a few choke points, including ASML's EUV monopoly, Zeiss optics and TSMC itself, the dominant fab, located in geopolitically exposed Taiwan. Any hit to that supply chain would make prices collapse. x.com x.comÂ
TSMC's strong AI demand is straining supply, while solid company fundamentals and attractive semiconductor valuations make an abrupt stop to its advance unlikely. TSMC's Wendell Huang expects 2026-28 capex to be significantly higher than in the previous three years to support customer growth; he says most capex is tied to long-term demand. x.comÂ
A supply response could compress Western Digital's pricing and margins, eroding its apparent cheapness. Its 2013-24 normalized earnings merit a look: even huge demand growth in other industries eventually drew supply and mediocre returns. A digestion/reset would hurt buy-and-hold investors, though the outcome is uncertain. Pre-AI economics were mediocre and unlikely to become amazing post-AI; TSMC's stronger pre-AI economics make its post-AI case better. x.com x.com x.comÂ
TSMC may lose pricing power as performance gains shift from shrinking transistors to stacking, interconnects and optics, while logic folding could make older processes competitive. Despite strong leading-edge demand, investors may overestimate the profit share its node leadership can retain. Its cautious expansion and past reluctance toward advanced packaging suggest a risk-averse culture that protects returns but could leave it late to disruptive technologies and key customers. x.comÂ
TSMC wins regardless of which AI chip prevails, whether Nvidia's GB200 or Google's Ironwood TPU, which would make it a no-brainer if not for having the highest Taiwan risk of any stock, though most stocks are exposed at different levels. x.comÂ
TSMC's AI growth still faces margin pressure from overseas fab expansion and a faster A14 ramp for mobile customers facing 2nm SoC challenges. 3Q gross margin of 66.4% missed expectations, and the 4Q guide is softer at 65-67%; margins are expected to remain largely flat through 2027-28 despite projected 39% revenue growth in 2027. Hold; target nudged to NT$2,999 at 20x 2027 earnings. x.com x.com x.comÂ
TSMC looks like it has put in a blowoff top, rising even on an announcement that it cannot afford new ASML equipment. x.comÂ
Architecture changes could lift TSMC wafer demand. Shifting from 12-high to 8-high lifts volumes; an on-device AI phone upgrade cycle would be enormously bullish, while ASIC gains over Nvidia help because ASICs use more wafers. TSMC is arguably more vital to AI buildout than MAG stocks and a reasonable extended-AI-cycle play at a not-crazy multiple, barring big macro events. Margins may not expand as capex rises; a Terrafab partnership, if it happens, would somewhat ease Intel competition risk. … Show more
Taiwan Semiconductor looks undervalued as AI capex keeps climbing, yet investors are sleeping on it. x.comÂ
TSMC's shifting cost structure is pressuring gross margin despite revenue and EPS beats. TSMC reported Q3 gross margin of 66.4%, down from 67.7% in Q2, and another decline is guided next quarter; Arizona is expected to drag gross margin by 2-4%. TSMC is checking AI data-center progress as it plans wafer capacity, while reiterating long-term AI demand strength. Price hikes may be next, given management's commitment to protect shareholder interests. x.com x.comÂ
TSMC is irreplaceable as the maker of the world's most advanced chips for Nvidia, Apple and AMD. x.comÂ
