Asia Tea Time - Cup 52 ☕

This week I talk TSMC’s latest earnings, getting to grips with the ability to spend money guilt free and Singapore’s leadership succession plan.

Macro in Asia

TSMC disappoints investors with lower projected demand outlook 

Taiwan Semiconductor Manufacturing Corp, otherwise known as “TSMC”, saw its shares fall nearly 7% during the week. 

That came as the world’s largest chip producer projected weaker-than-expected demand for semiconductors worldwide.

Why it’s happening

• TSMC is technically seen as the bellwether for tech hardware given it dominates the actual manufacturing of all sorts of semiconductors.

• Investors weren’t vibing the company’s outlook for the global semiconductor market this year. It cut its expectation for global growth in chip demand to 10%.

Why it matters

• TSMC manufactures semiconductors for nearly every type of semiconductor “fabless” firm – i.e. the companies that just design them. These include the likes of Nvidia and AMD. Any adjustment to forecasts is going to have a big impact throughout the sector.

• The company also maintained its capital expenditure plans at between US$28-32 billion, which fell short of market expectations. 

• While that’s not exactly a small amount to spend on building new chip plants, it disappointed investors who were hoping the “AI” theme would drive a higher capital expenditure number.

What’s next?

• TSMC was one of the first large tech companies to report earnings. Watch out for Nvidia, Microsoft, Amazon, and the rest of the Big Tech players that report in the coming weeks as they’re all part of the AI growth story.

Tim’s Take 

In case readers haven’t noticed, AI has been a hot theme in the markets. No other company has been as much of a poster child for the AI revolution as Nvidia. 

Nvidia’s stock price had, at one point in 2024, nearly doubled in the space of just three months as its market value surpassed US$2 trillion.

💡

But TSMC’s latest earnings have provided a reality check on the AI growth story. Just like any new technology, some companies’ share prices had gotten ahead of themselves. 

The world’s largest chip producer though had some comments from its CEO C.C. Wei to thank for its shares’ capitulation.

On the company’s post-earnings conference call, Wei stated that “macroeconomic and geopolitical uncertainty persists” and that this would potentially weigh on end-market demand for chips. 

Investors did not like that and it took the spotlight away from results that were actually very solid from the chip giant.

TSMC beat expectations on revenue growth, as it recorded sales of US$18.87 billion for the first three months of 2024 – an increase of 12.9% on Q1 2023.

It also reiterated its guidance for 2024 revenue to rise in the range of 20-26%. That’s a pretty remarkable number for a company that pulled in US$69.3 billion in sales in 2023.

What’s not surprising is that the market got ahead of itself. TSMC serves as an indicator for the broader semiconductor industry.

ASML – the Dutch company that makes those high-tech “lithography” machines that TSMC uses to actually produce chips – also posted some pretty disappointing numbers earlier this week. 

What’s the big takeaway? We could see some more earnings in the next few weeks that don’t live up to very high market expectations. Nvidia shares are down nearly 15% in the past five days. Make of that what you will.

Tim’s money tip of the week

Focusing on what we should be doing with our money typically focuses on the saving or investing portion.

Whether that’s investing in an ETF or buying an insurance plan for protection, there’s always so much advice out there. It also helps that entire industries thrive on this advice being paid!

But what’s not really covered is how to responsibly spend our money. Obviously, we shouldn’t be going overboard and blowing thousands of dollars on a luxury two-week holiday or fancy designer goods without any second thoughts on budgeting.

Yet at the other end, we need to know how to enjoy the money that we have earned and that we have been able to grow.

Understanding our spending habits and our money psychology has been covered by some great writers and commentators – like Morgan Housel or Ramit Sethi – but the one message that comes through (for me at least) is that the ability to spend money without any guilt is not always a natural one.

Being able to let go and spend guilt free, without any accompanying regret or fear, is something that we can all learn to get better at.   

Story of the week

It was announced at the beginning of the week that Singapore’s current Prime Minister Lee Hsien Loong is set to hand over the reins to current Deputy Prime Minister and Minister for Finance Lawrence Wong.

Mr Wong will take over from the current PM next month. It will also market the first change in the top post in Singapore in 20 years as the ruling People’s Action Party (PAP) looks towards the next general election, which must be held by November 2025.

Given the stability of the ruling party and its popular mandate, it should run out comfortable winners at the next GE.