The semiconductor scene has been ridiculously volatile in recent months, and just when you thought the whole trade was about to rollover, a day like Thursday happens, with the hard-hit semis reversing course, suddenly viciously surging to the upside, and punishing those who dared short. Indeed, sometimes, it’s just best not to play either side of the trade if you’re thinking about making a quick profit.
That said, for long-term investors looking to build a position for the next three to five years of the AI revolution, I think it makes sense to treat those horrific down days as an opportunity to buy. In a prior piece, I highlighted the likelihood that the most recent dive into a bear market would be followed by a vicious move higher.
Indeed, JPMorgan (NYSE:JPM | JPM Price Prediction) was right on the money to suggest buying chip stocks on the dip. And while increased turbulence in both directions could make it trickier to trade, I do think that volatility is a friend of true long-term thinkers who’ve been meaning to top up a position at a discount.
Of course, a discount to extremely overbought highs is hardly a discount, but, in the case of some of the higher-quality, wide-moat names in the chip scene, I do think there are some names to prefer over others, and, in this piece, we’ll have a look at two.
ASML
ASML (NASDAQ:ASML) already has a virtual monopoly over EUV lithography machines, very expensive equipment that is a must in chip production, and whenever shares take a dip, it’s more than worth checking in. Of course, the semi equipment makers tend to take cyclicality to the next level. But, at the same time, those who shied away from cyclicality probably missed the boat in the semi rally altogether.
As fabs beyond just Taiwan Semiconductor (NYSE:TSM) really get going, I view ASML’s next-generation machines as the making of the shovel and pick heads necessary for the “picks and shovels” plays to keep on manufacturing. Of course, ASML machines are insanely expensive, but for fabs looking to be on the absolute cutting edge, $400 million or so is just the cost of doing business.
As the firm readies its High-NA EUV systems while foundries look to floor it with the aspirations of coming close to matching the dominance of Taiwan Semiconductor, I couldn’t be more bullish on the likes of ASML. When it comes to EUV machines, it’s often cheaper and better in the long run to just spend more right off the bat to enhance yield and save time, both of which pretty much amount to greater cost savings over time.
With the firm boosting output as the AI data center buildout accelerates, it’s hard not to like ASML, even though it’s already gained 125% in the past year. The latest 10% might not be much in comparison, but nonetheless, it’s a decent dip worth buying for the bulls as the firm readies to report next week.
Taiwan Semiconductor
Taiwan Semiconductor is still down close to 9% from its high hit just a few weeks ago. And while the foundry giant faces more competition in the next five years, I do think that Taiwan Semiconductor won’t lose its stride. It’s ahead in the pack, and it has the know-how to stay ahead.
If anything, the great AI infrastructure buildout could pave the way for more demand than the market leader can handle. And let’s not discount the potential for things to go wrong as foundry rivals run into challenges; that’s pretty much to be expected when making a deeper dive into the complicated, high-stakes business of running a foundry.
As we head into the second half, expect the 2nm boom to really take shape. Beyond that, I’d look for advanced packaging techniques like Chip-on-Wafer-on-Substrate (CoWoS) to continue blasting off, as we move from high-performance to ultra-high-performance AI compute — something that’s needed on the path to superintelligence.
At the end of the day, Taiwan Semiconductor is more than just a fab; it’s a bleeding-edge innovator that’s playing chess as others play checkers. In my view, the stock’s latest dip going into earnings looks more than buyable despite the heftier price of admission (38.0 times trailing P/E).
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