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Forecasting fortune & capitalizing on the cutting-edge
By Batuhan Makara, Lead Content Writer at CLC & Partners
The Augmented Reality (AR) and Virtual Reality (VR) spaces are characterized by rapid innovation and increasing adoption thanks to the surge in remote work and learning environments with COVID-19. These technologies, further amplified by advancements in Artificial Intelligence (AI) and Machine Learning (ML), started to offer realistic and personalized experiences.
Taiwan Semiconductor Manufacturing Company (TSMC) has become an unrivaled leader in the semiconductor sector. To analyze and understand TSMC’s value, we must look into two of its biggest customers, Apple and NVIDIA.
The Vision Pro: Apple’s Leap into XR
Apple’s advancements in extended reality (XR), powered by TSMC chips, have the potential to redefine the market landscape with Vision Pro. Despite the premium price tag of $3499 raising eyebrows, Apple has its sight set on the developers first and aims to build a robust ecosystem before steering towards the masses.
Apple’s Vision Pro will use both M2 and R1 Chips. While the specifics of the R1 Chip remain undisclosed, M2 is a highly appreciated chip used by most Apple devices and is manufactured by TSMC. Under these circumstances, it’s reasonable to expect R1 to follow suit. What’s worth noting is that the Vision Pro doesn’t tie itself to an iPhone, iPad, or MacBook to perform, but using these together might just sweeten the experience. This could also increase the sales of those devices, leading to additional profits for both Apple and TSMC in the long term.
Apple is Turning the Tables on Samsung
Apple’s long-standing rival, Samsung, has been selling chips and displays to the tech giant. With rumors suggesting that Vision Pro’s displays could be built by Sony, Apple might be looking to cut its dependency on Samsung. As a result, TSMC and Sony could become the new favored allies.
Adding a new layer to its strategy, Apple has been incorporating the Neural Engine across its devices. Another product from TSMC, the Neural Engine specializes in fast and efficient execution of ML tasks. This could undoubtedly help elevate Vision Pro’s spatial, hand, gesture, eye, and voice recognition abilities.
The Impact of the CHIPS and Science Act
President Biden’s signing of the CHIPS and Science Act to counter China commits $52.7B in funds, loans, and grants to incentivize domestic production of semiconductors. As part of this commitment, TSMC announced a colossal investment of $40 billion into a new factory in Arizona, with AMD and NVIDIA posing as their first customers. Moreover, Apple plans to continue utilizing TSMC processors from this US-based factory and be the largest customer of the site. Apple’s CEO Tim Cook noted:
“The progress we’ve made with Apple Silicon has transformed our devices…And now, thanks to the hard work of so many people, these chips can be proudly stamped ‘Made in America.’”
At the same event, President Biden expressed:
“These chips will power iPhones and MacBooks, as Tim Cook can attest. Apple had to buy all the advanced chips from overseas. Now we’re going to do more of their supply chain here at home.”
NVIDIA Riding High on Innovation Trends
A striking spectacle has been NVIDIA’s recent rise, boasting a nearly 200% upturn in its stocks year-to-date and a staggering 10-year return of over 11,000%. Primarily known for its top-tier graphic cards (GPUs), NVIDIA has created a niche for itself with its custom-made chipsets tailored for AI, ML, automotive, robotics, database, and healthcare. Not interestingly, it was the AI niche, particularly with OpenAI, that scripted NVIDIA’s success story.
In addition, their industry-leading GPUs have been a vital power supply for VR glasses. Although flagship VR headsets like Oculus Quest 2, Meta Quest 2, and the upcoming Apple Vision Pro are standalone devices, lower-tier VR glasses leverage high-performance GPUs, making a computer with a robust GPU a logical and practical choice for many users. Furthermore, NVIDIA continues to ride the wave with its Omniverse platform, providing developers with a comprehensive cloud environment that allows them to conceive, develop, deploy, and manage applications for the rapidly evolving metaverse space.
But even among the applause, there are whispers of concern around NVIDIA’s valuation. Their net income was reported at $2.7 billion, marking a 13% decrease compared to the previous year. In addition, even if they meet next quarter’s revenue growth goal, their P/E ratio would still exceed 60. Thus, investors are not merely expecting a steady climb but are betting on NVIDIA’s capacity to scale its business exponentially.
Despite the challenges, NVIDIA has the wind in its sails. It’s tapping into all trending sectors very timely. In 2016, NVIDIA’s Taiwanese co-founder and CEO since its inception, Jensen Huang said:
“I don’t really have to watch science fiction because I’m in science fiction today. This is a company that’s close to the leading edge of what science fiction can be. VR, all the AI work we do, all the robotics work we do — we’re as close to realizing science fiction as it gets..”
Nevertheless, it’s also an inescapable fact that, like Apple and many major companies, NVIDIA owes much of its success to the Taiwanese semiconductor titan TSMC, as NVIDIA does not manufacture its own chipsets.
TSMC – the De Facto ETF & Powerhouse of Emerging Technologies
TSMC’s chips lie at the core of many trending industries. The company’s shares are currently trading at a 50% discount from their peak in January 2022, providing an enticing investment prospect and timing.
However, the company’s performance and outlook can be affected by geopolitical tensions between Taiwan and China. Notably, Warren Buffet’s Berkshire Hathaway purchased 60 million American depository receipts in TSMC, worth about $4.1 billion but decided to drop the majority of its stake due to geopolitical tensions and better opportunities elsewhere. Still, Buffett praised TSMC, describing it as a “well-managed company” and stated, “there’s nobody in the chip industry that’s in their league.”
Regardless, TSMC’s relocation to the U.S., coupled with its leadership in semiconductor manufacturing, might alleviate these concerns. With chips becoming smaller and more sophisticated, investing in R&D and capital expenditure for premium-priced chip production seems unachievable by the smaller players, making TSMC a possible monopoly of this province.
In conclusion, TSMC can be viewed as a de facto ETF for all the trending high-tech industries, serving a host of companies, including Apple, Qualcomm, AMD, Broadcom, NVIDIA, Intel, and Tesla. This diversification and broad relevance ensure TSMC’s resilience in various market conditions, solidifying its standing as a potential investment of the future.
