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Opportunity Express - Investment Strategy
Different destinies among peers, are chip companies going their separate ways?
Last week, ASML and TSMC (TSM) both released quarterly reports with large diameters. On October 15, ASMA slumped after its results, dragging on a huge adjustment in the semiconductor sector; but just two days later, TSMC posted another strong performance, hitting an all-time high and successfully joining the trillion dollar club.
ASMA IS THE WORLD'S LARGEST MANUFACTURER OF ENGRAVING MACHINES, PROVIDING ESSENTIAL EQUIPMENT FOR CHIP MANUFACTURING. TSMC is the world's largest chip manufacturing company focused on providing advanced chip replacement services. Both companies have broad moors and dominant positions in their respective fields. What is the reason behind the split in results? Can chipmakers continue to soar as AI wave deepens?
Different Fates of Companions
ASMA'S THREE-QUARTER PERFORMANCE ON PAPER REMAINED OUTSTANDING, WITH KEY METRICS SUCH AS REVENUE, NET PROFIT, GROSS MARGIN EXCEEDING WALL STREET'S EXPECTATIONS. But orders in hand for the season showed a marked decline. Orders in three quarters fell sharply to €2.63 billion, while the market forecast was €5.39 billion, well short of expectations.
At the same time, ASMA also lowered its performance guidance, with 2025 net sales down from 30-40 billion euros to 30-35 billion euros and gross profit guidance from 54%-56% to 51%-53%. ASMA'S SHARE PRICE FELL SHARPLY, FALLING MORE THAN 16% ON THE DAY OF ITS RESULTS, AND HAS REMAINED LOW FOR SEVERAL DAYS AFTERWARDS.
TSMC's performance and guidance exceeded expectations. The company expects fourth-quarter sales of $261 to $26.9 billion, with a market forecast of $24.94 billion; gross profit of 57%-59% and a market forecast of 54.7%. Capital expenditures will be slightly higher than $30 billion in 2024 and will continue to expand in 2025. The market eased concerns about the chip industry, with TSMC also hitting an all-time high.
The opposite of the two is mainly due to the difference in the field of artificial intelligence.
ASMA'S MANAGEMENT TEAM SAID AT THE RESULTS MEETING THAT DEMAND FOR AI-RELATED CHIPS REMAINS STRONG, BUT OTHER PARTS OF THE SEMICONDUCTOR MARKET ARE WEAKER, DRAGGING DOWN THE COMPANY'S PERFORMANCE.
In comparison, more than half of TSMC's revenue comes from High Performance Computing (HPC), which includes $NVIDIA (NVDA.US)$ OEM's core product GPU. The smartphone business, which accounts for more than a third, is also growing, driven by Apple's new equipment backlog.
Data Source: TSMC. The contents of this figure are for reference only and do not constitute any investment advice. Past performance does not predict future performance, markets are risky and investment needs caution.
Morningstar said, $Intel (INTC.US)$ Chipmakers such as Samsung Electronics have not adequately caught up with the AI wave, with poor technical craftsmanship and productivity delays that have affected Asmaq's orders. TSMC is the preferred replacement factory for AI chips and the only company capable of meeting cutting-edge chip growth needs. Despite TSMC's impressive performance, TSMC remains undervalued.
Is it hard to repeat "One Year's Club"?
Chatgpt died on November 30, 2022. Since then, driven by the AI wave, the entire chip industry has been on a huge wave. Track industry performance $PHLX Semiconductor Index (.SOX.US)$ The highest gain since Chatgpt was released by more than 120% and nearly doubled as of October 22.
But in the process, a number of companies have gradually dropped out, in addition to the aforementioned Asmack and Intel, which were once rampant along the way. $Super Micro Computer (SMCI.US)$ There was also a marked pullback. Both Infiniti and TSMC hit all-time highs last week, but the Philadelphia Semiconductor Index was still down 2.6%.
Whether it is the appearance of ASMA management or the segmented performance in the industry, it may serve as a reminder to investors: the AI wave has been in full swing for almost two years, and demand is still strong, but not every company in the industry is going to get a good laugh.
Bloomberg reports that the gap between companies that seize AI opportunities and those that fail to fully grasp the opportunity will widen, and judging by the performance of the latest fiscal quarter, the gap could soon widen from “rift” to “abyss.” If demand in the chip industry remains primarily AI-driven, the Gabelli analysts say, will continue at least until 2025.
UBS believes that strong demand for AI chips can still be seen now and remains closely focused on management's future demand guidance during the fiscal quarter. Analysts say the biggest beneficiaries of these expenditures will be $NVIDIA (NVDA.US)$ , the new Blackwell chip has been fully deployed and customer demand is strong. Other companies expected to continue to benefit from the AI wave include TSMC, $Broadcom (AVGO.US)$ , $Arm Holdings (ARM.US)$、 $Micron Technology (MU.US)$ and $Advanced Micro Devices (AMD.US)$ etc.
Diversification within the industry has made higher demands on investors, and buying whole blocks in a bunch may not already achieve “take-profit” or even “thunder” like Asman.
$Futu Holdings Ltd (FUTU.US)$ Provides a disassembly of the main business to help you better understand the company's business. Path: Stock Quotation Page > Company > Principal Composition
There is more information in the Company column about fundamentals, such as performance forecasts, analyst ratings, valuation analysis, and financial statements.
Data source: Futubull. The contents of this chart are for reference only and do not constitute any investment advice. Overperformance is not expected, the market is risky and investments are needed.
Industry giant Inweida's fiscal year is not in line with the natural year, with the latest quarterly report (25Q3) due to be released until November 20. But you can still keep an eye on the industry's performance through the performance of other companies, and AMD, which is on the same track with AMD, which belongs on the same track, will announce next week. And as a major downstream customer of AI chips, $Microsoft (MSFT.US)$ , $Alphabet-C (GOOG.US)$ Other tech giants will also release results next week, and the future capital expenditure situation is also worth watching.
Relevant risks
AI evolves not as expected: AI is currently the main driver of the chip industry, and if it is not as expected at the application stage, it can seriously affect industry demand.
INDUSTRY COMPETITION INTENSIFIES: THE CHIP INDUSTRY IS FIERCELY COMPETITIVE AND TECHNOLOGY ITERATION IS FASTER. Companies need to make continuous investments to maintain a competitive advantage or they may drop out or even be eliminated from the market.
Macro environment changes: After the US Federal Reserve cut interest rates by 50 basis points in September, US economic data continues to exceed expectations, and markets are gradually pricing in a “No Landing” scenario. The recent 10-year US bond yield has risen sharply to 4.2%, which could put pressure on risk assets if they continue.
Risk Disclosure: This content does not constitute research reports and is for reference only and does not serve as a basis for any investment decisions. The information referred to in this article is not a comprehensive description of the securities, markets or developments described. Although the source of information is considered reliable, the accuracy or completeness of the above is not guaranteed. In addition, the accuracy of any statements, opinions or predictions made in this article is not guaranteed.