Paradise Capital
AI & Defense Investor, Ex-Special Operations/Private Military Contractor
TSMC could gain modest additional 3nm demand from Nvidia's custom HBM base die. Korean press reports Nvidia asked Samsung, SK hynix and Micron to use TSMC's 3nm process, putting TSMC inside all three HBM supply chains; Samsung reportedly keeps its own foundry as backup, while @jukan05 cautions that Rubin demand limits available 3nm capacity. x.comÂ
TSMC's overseas factories are expected to weigh on profit margins by about 3-4%. Customers may eventually help pay for the expansion, but that relief remains a hope. x.comÂ
TSMC's growth looks compelling against its valuation. Diluted GAAP EPS rose about 70% year over year and US-dollar revenue 41%; at roughly 22 times annualized earnings, guidance implies accelerating growth. TSMC expects continued demand for leading-edge processes, including its 2-nanometer ramp. 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's capacity-constrained growth is holding margins through its costly 2nm ramp. Its Q4 revenue guide of $52.3-54.3B beats $49B consensus, implying 14% sequential growth, with 65-67% gross-margin guidance; planned Q4 capex is $19-23B versus $13.8B last quarter. World Trade Securities maintains Overweight and a $620 target. TSMC is also in talks to run Elon Musk's proposed Texas Terafab; additional fab and equipment demand depends on a deal. x.com x.comÂ
TSMC's AI-era growth opportunity makes it an incredibly bullish investment. CEO C.C. Wei said its annualized growth opportunity is probably higher than a high-50% CAGR. 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's land deal for two 1.4nm fabs and an advanced packaging facility in Taiwan removes a near-term roadblock to sub-2nm deployment. The Longtan Science Park expansion zone grew from 89.63 to 104.19 hectares, and TSMC estimates $49 billion of initial investment for four sub-2nm plants. That supports Apple's expected use of 1.4nm A22 Pro chips in 2028 iPhones and unblocks advanced-node spending as sub-2nm becomes a competitive necessity. x.comÂ
TSMC is the true picks-and-shovels play on AI, building a foundry moat that will take decades to bridge. It announced a $100B expansion in Arizona, bringing its US commitment to $265B, and CFO Wendell Huang said it is converting 5nm capacity to 3nm to meet demand and will not cede ground to competitors. Arizona costs are 4-5x Taiwan's, with short-term margin dilution, but 2nm now contributes revenue and AI-driven demand should outweigh the upfront capital. x.comÂ
TSMC is not a favorite longer term because the US administration and US companies have a stated goal of building a domestic source of silicon supply, and relationships toward that are already being forged. x.comÂ
TSMC trades at its historical average valuation in the midst of its industry's largest investment cycle. The world's most important company is at 17.5x forward earnings, in line with its 10-year average. x.comÂ