I would think that selling (or choosing not to buy) a stock because their P/E is low because their CapEx is high is short-sighted unless you don't think their CapEx spending is going to pay off.
It's like...back in 2012, I was talking to one of my wife's relatives at a Christmas party. He said he'd never buy Amazon stock because they've never been profitable. I said they're not profitable because every dollar they make, they put back into R&D. He would have 10x his money now if he had bought their stock.
Software R&D may be less efficient then the above math would imply, but there is a big range between perpetuity and some depreciating time horizon. R&D can also boosts growth prospects by expanding markets.
Oof, that's the bit I forgot. TSMC's CapEx isn't just expansion, it's replacement. They're constantly upgrading to manufacture new technologies.
It makes sense now, thank you.
As usual with these ratio metrics, a full understanding of the industry, or at least understanding that you can't compare apples to oranges, is important.
Yes and no. If NVIDIA loses access to TSMC due to geopolitical events, presumedly their competitors do too. There might be a couple years where they face increased competition from their own used market if they're unable to produce chis competitive with the previous generations', but at some point Samsung et. al. will catch up on capability and capacity, and NVIDIA will be as well positioned relative to their competitors to take advantage of that as they are today. The only case where this would be significantly different is if one of NVIDIA's major competitors was independent of TSMC and thus could use the lean times for NVIDIA to leapfrog them; but that would require considering Intel a real competitor.
But, NVIDIA's heavily exposed to the LLM craze.
Do with that what you will.
It seems to me that they don't use their moat to really drive price. I don't know if it's cultural or what, but they could easily extract higher prices given their position. I seriously doubt Apple, AMD or NVDA would walk to another fab and give up a huge performance edge in their offerings.
While TSMC's gross margins are 60% which is already quite high, their customers also have close to 50% margins... which implies room for higher chip prices
I would put it as ~1% per year right now, but perhaps other investors see it differently.
https://www.metaculus.com/questions/11480/china-launches-inv...
https://www.metaculus.com/questions/5320/chinese-annexation-...
Production capacity losses might be realistic scenario and sales to west going down.
So a reasonable guess based on that assumption would be ~6.5% per year.
I'm not trying to be [overly] pedantic but HN is littered with comments basically just making shit up in a language of confidence and precision.
As you say, 1% versus 6.5% is a level of precision that isn't helpful. The way I prefer to think of it is that a Chinese invasion of Taiwan is sufficiently probable as to warrant making contingency plans for such an event, but not so probable as to warrant making active efforts to avoid Taiwan.
Taiwan is 30+Million people. I should imagine that would require a massive military undertaking.
https://www.macrotrends.net/stocks/charts/TSM/taiwan-semicon...
Once the fabs are out, there is less impetus for the US (plus Korea, Japan, etc.) to put a lot on the line to save Taiwan.
On the real front, the tech war with China is intensifying a bit. China doesn't want to be locked out of chipmaking and the US is doing that via ASML. When a company is having profits, one needs to ask whether those profits will continue and for how long. Will China invade Taiwan this year? Unlikely. However, there certainly is a risk now and in the future depending on how things go with US/China relations.
Likewise, TSMC's rise has come during an era when they've out-fab'd everyone else. However, if you go back to 2013, that wasn't really the case. Samsung, GloFlo, SMIC, and Intel arguably had slight leads. It's really been the past 5-7 years that TSMC has really taken off. This could change. Intel's roadmap over the next few years possibly looks better than TSMC's with their 20A process supposedly coming to market before TSMC's 2nm. With Intel also offering to fab chips for others, that could potentially steal some business from TSMC.
Are these likely to happen? I don't know. It could just be market pessimism. Still, there are real risks. TSMC started taking off when Apple decided to commit to using them as their only fab. Apple is known to make long-term commitments to companies so that they can invest with confidence. If Apple makes a new long-term deal with Intel in 2024 so that they can get 20A instead of waiting until 2025 for TSMC's 2nm, will that rob TSMC of their strategic planning advantage? Other fabs didn't have the commitments that Apple brings to the table. If TSMC loses that, how much does that impact their progress? It's easy to invest in the latest stuff when you have commitments. It's harder to go with "if you build it, they will come." TSMC has done a great job, but I have to think part of that is aided by Apple's commitments.
At the same time, TSMC's growth has come during a period when Intel was asleep at the wheel. It looks like that period is ending and Intel is rejuvenated toward their fab business. Even if Intel doesn't surpass TSMC, Intel being equal or barely behind will make for a very different market. We know that Qualcomm and AMD want to replace TSMC. They tried with Samsung and were disappointed at the yields. Maybe Intel will become an alternative (at least for Qualcomm). As Intel's fab gets better, it might dampen demand for ARM server chips and AMD chips in general. AMD has been doing well in part because it had a significant fab advantage via TSMC. If that goes away, AMD processors might go back to being second-string. Likewise, a decent amount of ARM datacenter demand is due to the cost and performance/watt advantage that comes from being able to use TSMC's better fab. If that goes away, do we see ARM datacenter adoption slow?
A lot of people treat TSMC as if their market position is unassailable. I don't think TSMC is going anywhere. I think they're in a decent position. However, if Intel actually pulls off their roadmap, it seems like things could be a bit rough. We already saw Apple forego TSMC's 4nm chips for their non-Pro iPhones last year. We've heard rumors of supply constraints on 3nm parts for this year's iPhone and we still haven't seen a 3nm MacBook. Intel was just at Computex showing off its Meteor Lake processor using Intel 4. When Apple launched their 5nm M1 MacBooks, Intel was making the transition from 14nm to 10nm.
Again, I don't want to make this sound too doom and gloom about TSMC. I just want to note that TSMC has significant risk and that risk has been increasing - both from competitors in the industry shifting and from the shifting political climate and rivalry between the US and China. Will those things come to pass? Who knows. Intel might start slipping on its roadmap like it did for years. China might decide that it's fine with the US cutting them off from EUV/ASML and that it has better things to do. But there is risk.
Part of what's let NVIDIA perform a bit better (if we're chalking its market cap up to performance rather than hype -- the truth is likely somewhere in between) is that they actually have a bit more of their business tied to software these days, which doesn't typically suffer from raised input costs. Sell more software, and your profits rise a LOT faster, because 100 licenses worth of software has a similar input cost as 1 license.
Presumably investors are anticipating/hoping for a return to previous levels.
https://www.tradingview.com/symbols/NYSE-CRM/financials-earn...
A16Z even wrote an article on this 9-years ago.
https://a16z.com/2014/05/13/understanding-saas-why-the-pundi...
Essentially, in Enterprise Sales - you have huge upfront costs to win a deal (e.g. paying commissions, pre-sales expenses like T&E, marketing, etc).
And in SaaS, you only collect a small monthly fee (as opposed to On-Prem when you collected a large upfront fee all at once).
So it becomes a cashflow / revenue recognition issue for these SaaS companies and you might not even be profitable until 2-years into the life of the customer contract all due to this cashflow issue.
This gets compounded if you're having high growth in New sales (you go further into debt).
To this point, when the market crashed in 2008 and sales slowed - that was the year that Salesforce experienced higher than normal profits.
Because of this historically Salesforce has traded more reliably as a multiple of its cashflows and currently it trades at around 26x cashflows which is about right if you comp with similar companies. The argument here being that so long as they can grow their cashflows faster than they're diluting them via stock based comp then GAAP earnings aren't all that important since investor's per share cashflows are increasing. Some disagree with this though.
My opinion on this is that all earnings should be taken with a grain of salt since both GAAP and non-GAAP earnings are arguably sanitised accounting numbers and not necessarily a reflection of actual financial results.
Compensation is obviously an operational expense...
https://ycharts.com/indicators/sp_500_pe_ratio#:~:text=S%26P....
Price to Sales: (TTM revenues)
NVDA: 37x
AMD: 8x
TSLA: 8x
TSM: 7x
AAPL: 7x
GOOG: 6x
QCOM: 3x
When a tech employee receives shares, it dilutes other shareholders. This is not "free" money to be ignored just because it doesn't take cash to pay it
Ok so the reason why P/E is so crazy high for saleforce is that their earnings tanked and the price hasn't followed.
To put this into context with other large tech companies: