Chart of the Week: 1 Company That Powers the World’s Technology
January 15, 2021
Netflix. Cars. Smartphones. Payment systems. Nearly everything in our world today is powered by semiconductors. But as investors, we don’t tend to think of companies that operate in the space as being that promising.
However, that notion couldn’t be further from the truth. One such firm that has quietly joined the ranks of the world’s top 10 most valuable companies (by market capitalisation) is Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM) (TPE: 2330).
Otherwise known as TSMC, the semiconductor foundry – which basically manufactures all the chips for semiconductor designers or “fabless” firms – has risen to become the most integral player in the global semiconductor supply chain.
TSMC makes chips for companies ranging from Apple Inc (NASDAQ: AAPL) to Nvidia Corporation (NASDAQ: NVDA) and Tesla Inc (NASDAQ: TSLA).
As the world went into lockdown amid Covid-19, the demand for semiconductors that power the world’s technology has soared. An incredible jump in business has also led to TSMC’s market cap closing in on US$600 billion.
The technology required to manufacture newer and newer generations of chips is astounding. Fitting more and more transistors onto a shrinking area of silicon has seen remarkable feats of technological prowess.
The smallest chips now measure five-billionths of a metre, or five nanometers (5nm). And they’re starting to make up an increasing share of TSMC’s growing revenue (see below). Going forward, that number is likely to rise further.
Given that 5nm is 1,000 times smaller than a red blood cell, it’s no surprise to learn that TSMC has a nearly unassailable technological lead on the pack of other contract manufacturers.
Having just announced blowout earnings (again), TSMC also unveiled plans for a whopping US$28 billion in capital spending this year to meet continued demand.
For long-term investors, TSMC will likely continue to be a key feature of the world’s tech ecosystem for years to come.
TSMC Q4 2020 revenue by chip technology
Source: TSMC Q4 2020 earnings presentation
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Taiwan Semiconductor Manufacturing Co Ltd.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.