It’s entirely possible that Nvidia may exceed expectations as it has in the past, but its current valuation leaves little room for disappointment.
Only time will tell whether TSMC or Nvidia will deliver better shareholder returns, but in the absence of perfect foresight, we believe the better investment decision today from a risk/reward perspective is overwhelmingly in favour of TSMC. Its shares can be purchased for less than 20 times earnings, a lower valuation than the typical global stock, despite TSMC’s superior fundamentals. Perhaps most importantly, we don’t need to pay a steep valuation for TSMC. We believe this makes TSMC an excellent way to participate in the AI boom without having to guess which chip designer will be the ultimate winner. In addition, TSMC will likely be the manufacturing partner of choice for other fabless companies who are designing chips for AI workloads. When Nvidia is winning, TSMC is quietly benefiting as well. As such, the barriers to entry are high and only becoming more formidable over time with each new generation of chip technology. TSMC, on the other hand, focuses on manufacturing – a business that requires leading-edge expertise and enormous amounts of capital. In semiconductor jargon, Nvidia is a “fabless” semiconductor company, meaning that they design chips but do not make them. TSMC is the sole foundry that makes two of the key Nvidia chips that appear uniquely well suited for training and running large language models like ChatGPT. We have long appreciated TSMC’s technological leadership, its relentless focus on execution and its customer-centric culture based on mutually beneficial long-term client relationships. It is a company that Orbis has followed even longer than Nvidia and has owned in several Orbis funds over the years. One of the Fund’s largest holdings is in Taiwan Semiconductor Manufacturing Company (TSMC). Importantly, one can still participate in exciting growth opportunities while remaining disciplined.
As contrarian investors, there will be times when we miss out on stocks like Nvidia, but we believe it is critical to stay focused on valuation. As much as we have admired the company’s technological prowess and its impressive financial performance, we have never been able to get comfortable with its valuation. Its latest results guidance simply crushed even the most wildly optimistic estimates, and the stock jumped more than 25% on the news.Īt Orbis, we have researched Nvidia on multiple occasions over the past 15 years. Nvidia’s blowout guidance in its most recent quarterly earnings report shows just how briskly this new technology is being adopted. ChatGPT and generative artificial intelligence (AI) have taken the world by storm.
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