On November 14, 2022, Warren Buffet’s Berkshire Hathaway (NYSE:BRK.A) announced a new investment in its 13-F quarterly filing showing a 60.1 million share stake in one of the semiconductor makers the most dominant in the world, Taiwan Semiconductor Manufacturing Company (NYSE: TSM). This sent the stock skyrocketing 10%. While his $4.1 billion stake yields just over 1% of the outstanding shares, it was his shares that spurred a rally in TSM and semiconductor stocks. His reputation as one of the greatest investors of all time provides an instant bonus to the companies he invests in. Countless fund managers and retail investors follow his every investment move and usually track him in positions after they are revealed in SEC filings. TSM shares soared more than 10% on the news. Before chasing after the stock, it is prudent to analyze the operations of the underlying company. Taiwan Semi has brought its capabilities back online to improve the global semiconductor supply chain and is firing on all cylinders.
The world’s largest chipmaker
Taiwan Semiconductor is a contract manufacturer of computer chips. It has manufacturing plants (FAB) that manufacture chips according to customer specifications. Fabs are notoriously expensive and time-consuming to build. Intel (NASDAQ:INTC) manufactures its own chips through its own factories and plans to strengthen its contract business. Taiwan Semi produces nearly 80% of the world’s semiconductors for some of the most recognized brands such as Apple (NASDAQ: AAPL) which is its largest customer, Applied Micro Devices (NYSE: AMD), Broadcom (NASDAQ: AVGO), Marvell Technologies (NASDAQ: MRVL), MediaTek, Qualcomm (NASDAQ: QCOM) and Nvidia (NASDAQ: NVDA). The Company is extremely profitable with gross profit margins of 57.3%. Pandemic shutdowns and subsequent reopenings caused demand for chips to surge while supply was thin, as fabs were taken offline and had to resume production. It was the main reason for the supply chain disruption that saw automakers like Ford Motor (NYSE:F) and General Motors (NYSE:GM) slow their production of new cars due to chip shortages. computers. The supply chain has improved with production capacity returning to normal. The company plans to build another multi-billion dollar factory in Arizona in addition to the $12 billion investment committed two years ago, according to the Wall Street Journal.
Shooting on all cylinders
On October 13, 2022, Taiwan Semi released its fiscal third quarter 2022 results for the quarter ending September 2022. The financial statements were reported in New Taiwan Dollars or NT$. The company reported earnings per share (EPS) of NT$10.83 excluding one-time items compared to consensus analyst estimates for profit of NT$10.39, a beat of NT$0.44. Revenue rose 47.9% year-on-year (YoY) to NT$613.14 billion, beating analyst estimates of NT$607.97 billion. Demand was driven by strong demand in 5 nanometer (N5) technologies.
Taiwan Semi CEO CC Wei said, “Looking ahead to 2023 with the successful ramp-up of N5, N4P, N4X and the upcoming ramp-up of N3, we continue to expand our customer product portfolio and increase our addressable market. While the ongoing correction in semiconductor inventories will affect the utilization rate of the first half of 2023, we expect our business to be supported by stronger demand for our differentiated and leading advanced and specialized technologies, and that 2023 will be a year of growth for TSMC. N3 is expected to increase its volume in 2023 as demand is greater than its supply. N3 revenues are expected to outperform N5 sales in its first year 2020 in 2023. He added, “Our 3 nanometer technology will be the most advanced semiconductor technology in both PPA technology and transistor when introduced. We are confident that the N3 family will be another important and enduring node for TSMC. Smartphones and high performance computing (HPC) are driving demand.
Investors should be aware of geopolitical tensions occurring between China and Taiwan and the United States. China believes that Taiwan is a province of the People’s Republic of China (PRC), but Taiwan has been an independent country as the Republic of China (ROC) since 1949. Since Taiwan produces the majority of computer chips in the world, states States have an interest in Taiwan’s independence as a trading partner under democratic rule. So far, it’s just been a battle of words, but a Chinese invasion of Taiwan is a possibility that can’t be ruled out. The Biden administration has implemented restrictions on semiconductors in China, which will impact sales of artificial intelligence (AI) chips from AMD and NVDA in 2023. The administration signed the $50 billion CHIPS and Science Act in October 2022 to bolster US semiconductor production by investing in fabs. .
Weekly downtrend channel reversal throughout the year
On the weekly candlestick chart, TSM has been in a weekly downtrend channel since February 2022 and is rejecting twice the 20-period exponential moving average (EMA) down. The stock registered a weekly low and a monthly double low near the $59.75 level. The weekly Stochastic coiled up like a spring in the 20 band, triggering the weekly low in the market structure (MSL) above $63.43. TSM finally broke through the weekly 20-period EMA resistance at $77.04, but the 50-period MA resistance continues to break down at $94.34. Volume jumped off the 13-F record, squeezing short sellers as buyers seek higher stocks. The pullback support levels to watch are found at $74.92, $67.73, $63.43 MSL weekly trigger, $58.75 monthly double bottom and $52.53.