Note from Daily Trade Alert: The following article first appeared in The Growth Stock Advisor, a premium newsletter offered by Investors Alley.
I want to return your attention again to what is by far my favorite technology stock: Taiwan Semiconductor (TSM), or as it is often called TSMC.
It is probably every company’s dream to have everyone in the world banging on your door, asking you to do work for them. And that’s the exact situation the TSMC is in. It is in the proverbial catbird seat.
From Apple and Sony to all the automobile companies and many other industries, corporations from around the world are now literally sending representatives to TSMC’s headquarters daily in hopes of securing chips for their products. Companies, and even countries, are now even frantically asking the Taiwanese government to intervene for them with Taiwan Semiconductor somehow. But TSMC even gave its own government the stiff arm. And it can get away with doing so, because its factories are already running at 100% capacity.
TSMC has unparalleled clout in the chip industry. And that dominance has only grown amidst the growing rivalry between the U.S. and China, which that has hurt Chinese firms.
The company’s rise is reflected in its stock price, which has doubled in the past year. Its market capitalization has topped $690 billion, placing it among the top 10 in the world!
How TSMC Did It
TSMC has come a long way from its founding in 1987. The company found quick success as a contract manufacturer when it smartly tapped the U.S. shift toward “horizontal” specialization.
Previously, U.S. chip companies had kept their entire production in house, from design to manufacturing. But American companies decided that keeping manufacturing within the company was not cost effective because of high U.S. wages. So, they began outsourcing low-value mass production to Asia.
The new American business model of focusing on chip design gave birth to fabless chipmakers such as Qualcomm and Nvidia. Their whole business model revolves around intangible assets, such as patents and data, and not manufacturing chips.
The rest, as they say, is history. TSMC took advantage of this and stepped into the role of an extremely reliable manufacturer that could keep costs down.
The company gained even more momentum when smartphones became commonplace in the 2010s. It swiftly poured cash it accumulated from contract manufacturing to develop new production technology. This, in turn, helped attract even more orders.
TSMC is now one of only three companies in the world that can produce cutting-edge semiconductors. The others are Samsung Electronics and Intel—but now, troubled Intel is on the verge of dropping out of that exclusive club.
How TSMC Will Stay on Top
Now that TSMC is on top of the mountain, will it stay there? I believe it will. It will likely partner with the world’s best technology firms on new products. TSMC is already partnering with Apple (AAPL) to develop ultra-advanced display technology. These plans include developing micro OLED displays, a radically different type of display built directly onto chip wafers. The ultimate goal of using this new technology is in Apple’s upcoming augmented reality (AR) devices.
Apple is collaborating with TSMC because these devices represent a very new and different technology. And Taiwan Semiconductor is the best in the world at making ultra-small, high-quality products.
Micro OLED displays are not built on glass substrates like the conventional LCD screens in smartphones and TVs, or even the OLED displays used in high-end smartphones. Instead, these new displays are built directly onto wafers (the substrates semiconductors are fabricated on), which will allow for displays that are far thinner and smaller and also use less power. The displays under development are less than an inch in size. This makes them more suitable for use in wearable AR devices.
Micro OLED is the most ideal display technology for next-generation AR displays. It can make a display ultra-small, reducing the overall weight of the device, and the image is high-resolution.
However, we won’t see these displays for a while. The micro OLED project is now at the trial production stage; it will take several years to achieve mass production.
It is also rumored that Apple and TSMC are also working on micro LED technology. This project also involves some chip manufacturing technology. The components are 100 times smaller than those used in LED lighting products, and they do not need backlight modules like traditional LEDs and LCDs, meaning the display can be much thinner. Micro LEDs will also provide high color contrast and can be used to make curved or foldable screens, similar to OLED screens.
The company’s is work on new technologies like this that will keep Apple and TSM on top for a very long time.
Taiwan Semiconductor remains an ultra-strong, 5-star stock. You can buy the shares up to $150 a share.
Tony Daltorio
February 16, 2021
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Source: The Growth Stock Advisor