TSMC or Samsung? One chipmaker is the better play on A.I., geopolitics and earnings, analyst says
The Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics have emerged as two key players in the increasingly competitive landscape of the chip-making sector. However, when it comes to capitalizing on the growing trend of artificial intelligence, TSMC seems to have an edge, according to Mehdi Hosseini, senior tech and hardware equity analyst at Susquehanna. In fact, shares of TSMC shot up last week after Nvidia impressed investors by forecasting a surge in demand for its artificial intelligence-related chips. Nvidia does not manufacture its own chips. Instead, it relies on TSMC to manufacture. TSM SSNLF,NVDA 1Y line “I think if A.I. is becoming more of a buzzword and more commonly used in our daily conversation, TSMC has the most exposure there,” Hosseini told CNBC’s “Street Signs Asia” program on May 26. According to Hosseini, TSMC’s specialty in semiconductor manufacturing also sets it apart from Samsung’s diversified electronics business model, making TSMC less susceptible to global economic shifts. “TSMC has a better quality of earnings,” the analyst said after upgrading the stock last month over lower inventory forecast levels at the chipmaker’s customers by the end of the year. “Samsung has more exposure to the memory industry, which is more volatile, compared to TSMC that has more leverage to leading edge in semiconductor manufacturing,” Hosseini said. “So, on a relative basis, I think TSMC offers better quality of earnings and also a much better free cash flow margin.” “So, the quality of earnings, quality of management, and shareholder return favor TSMC over Samsung,” Hosseini concluded. Geopolitics However, it’s not just about who makes the most money. Tensions between the U.S. and China have increased, raising fears about how this might affect businesses in Taiwan, where TSMC is located. If tensions grow, would this make Samsung, located in South Korea, a safer bet? Hosseini doesn’t think so. The tech analyst said that when it comes to advanced microchip manufacturing, TSMC is pretty much the only game in town. Tech companies that design chips like Apple, Nvidia, Amazon, Google, and Microsoft rely heavily on TSMC to manufacture them. If there were any trouble in the region, these companies wouldn’t have another company to turn to, according to Hosseini. “Samsung has been trying to catch up in foundry, specifically leading-edge foundry, business. But they are still way behind TSMC,” Hosseini said. “If there is increased geopolitical tension, I think [we’ve] got a bigger issue … Nvidia is relying on TSMC. And if TSMC is impacted by geopolitical conflict, their customers will be more impacted than TSMC.”
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