It was January 24, 1848, when James Wilson Marshall discovered a lode of gold while working on the construction of a new sawmill. From that moment on, thousands of miners scoured every corner of California, giving rise to a frenzied hunt for gold. Contrary to popular belief, in the end it was not the many gold prospectors who got rich but those few who sold the tools to prospect for it, such as shovels and picks.
As old as this story is, more than 150 years, I think it is a perfect analogy to describe my investment thesis. The interest of many is directed toward 21st century gold, thus Taiwan Semiconductor Manufacturing Company Limited’s (NYSE:TSM) (“TSMC”) chips, but I think it is more reasonable to focus on who enables the chips to be built, namely ASML Holding N.V. (NASDAQ:ASML). In this article I will explain this concept in detail by clarifying the reasons behind my bullish thesis on ASML and bearish thesis on TSMC.
The importance of semiconductors in the world
Before making a comparison between ASML and TSMC, I think it is worth pointing out the main aspects of the market in which they operate.
Semiconductors make up a market that was worth $600 billion in 2021 and will most likely be worth at least a trillion dollars by the end of the decade. Their importance is crucial, since they are present in any electronic device, from the smartphone you are reading this article from, to the washing machine where you wash your clothes. Without them, it would be virtually impossible to be able to sustain the same lifestyle, but there is more. Today’s society is increasingly geared toward technological solutions involving new electronic equipment; therefore, the more time passes, the more dependent we are on semiconductors. The current dependence that all countries in the world have on semiconductors is something extremely dangerous in my opinion, because history has taught us that when everyone is dependent on something, new conflicts are likely to be created. Oil several times has been the cause of wars because of its crucial importance in today’s industrialized economy, and gas is no different. In any case, we do not need a war to realize how dependent we already are on semiconductors; in fact, the pandemic was enough to put us on alert. Continuous lockdowns completely disrupted the semiconductor supply chain, a problem we are still paying for today.