MARKETS & INVESTING
The price you pay matters
companies have historically been able to clear . As shown in the chart above , paying too much for technology stocks has generally been a recipe for underperformance .
Only time will tell whether TSMC or Nvidia will deliver better shareholder returns , but in the absence of perfect foresight , we believe the better investment decision today from a risk / reward perspective is overwhelmingly in favour of TSMC . It ’ s entirely possible that Nvidia may exceed expectations as it has in the past , but its current valuation leaves little room for disappointment .
Diversifying across the sector Of course , an investment in TSMC comes with persistent risk of tensions between Taiwan and China in the best of times , and the far more extreme tail risk of a potential invasion of Taiwan . Trying to handicap the latter makes predicting the future of AI look relatively simple . But we don ’ t think this is a reason to avoid TSMC . It is also worth pointing out that Nvidia is almost entirely reliant on TSMC to manufacture its chips and hence its business would also be adversely affected in the case of a China-Taiwan conflict — something that is not fully contemplated in its 23 times revenue multiple . Orbis also has broader semiconductor exposure beyond TSMC . We own memory chip makers Samsung Electronics and Micron Technology . The rise of generative AI is good news for the memory industry as it emerges from one of its deepest cyclical downturns . The pandemic-era boom in demand for all sorts of computing devices has since turned into a painful bust . At a time when memory chip makers are cutting back on capacity , a surge in AI-driven demand should support strong memory prices and industry profitability . The memory industry was already on track to recover strongly in 2024 , and this new demand vector from generative AI will be an additional tailwind .
We also own Intel , where the investment thesis is more idiosyncratic . While the company stands to benefit from AI server demand , Intel is ultimately a turnaround story . The company is trying to restore its technological position at the leading edge of semiconductor manufacturing and catch up with TSMC and Samsung Electronics . It has a long way to go — and there is no guarantee of success — but we think the investment case is intriguing . At the current share price , the stock is trading close to book value , which mostly consists of fab equipment that has high resale value at a time when the US is keen to build domestic capacity . In other words , you could theoretically shut down the company and still get your money back by selling off the equipment . The implication is that markets are giving Intel ’ s turnaround very little — if any — chance of success . We think this is far too pessimistic . Intel stands a decent chance of closing the technological gap with TSMC and Samsung Electronics , which will restore the competitiveness of its CPU design business and create opportunities to compete effectively in the foundry business . Intel will also have an important strategic role to play as an alternative chip supplier for as long as China-Taiwan tensions remain a concern . The sudden emergence of generative AI has been a reminder of the complexities inherent in technology investing . Predicting the future is never easy , but it is even more difficult when technology is rapidly evolving . And the usual emotional cycles of greed and fear — which ultimately drive valuations — are even more extreme as investors try to pick the next big winners and avoid the next dinosaurs .
One investment approach , three funds . Our investment team applies the same fundamental , long-term , contrarian approach across the investment objectives of our three funds , catering to different risk appetites .
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Disclaimer The contents of this commentary have been approved for issue in the United Kingdom by Orbis Investments ( U . K .) Limited which is authorised and regulated by the Financial Conduct Authority . Past performance is not a reliable indicator of future results . When investing , your capital is at risk .
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