Latest Positions: Semiconductors

Here is Part 2 of the list of my latest personal portfolio positions and most of the hedge fund positions with updated commentary and ratings for each position.

The ratings for each stock go from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment.” The positions that are bolded are those that I consider to be “core” holdings and am unlikely to ever sell out of them entirely.

• The Semiconductor Revolution
  • NVDA NVIDIA (7) — Nvidia’s has been unstoppable for the last year. I guess that’s how it goes when you can sell every chip you sell into a bidding war amongst the largest, most well-capitalized companies on the planet. That is, Nvidia’s primarily selling their AI chips to trillion dollar companies like Meta, Google, Microsoft, etc for $40,000 a pop or more, up from an average selling price three years ago that was a small fraction of that. And Nvidia’s biggest constraint to making more money for its shareholders is supply capacity. If Nvidia could make every chip that its customers are demanding, the revenue for 2024 would probably be double the current estimate of $133 billion and earnings per share would probably be more than double the current estimate of $30 per share. The bad news for Nvidia is that those kinds of prices and margins bring on lots of competition and even their customers are very compelled to design their own chips to replace Nvidia’s best AI chip (currently, the H100).The good news for Nvidia is that it turns out that creating great AI chip designs is hard and creating a de facto standard software interface to program the AI you want those chips to do is also hard. I have had long-time Trading With Cody subscribers in Nvidia since long before it was a Mag 7 stock (as a matter of fact, I’ve had long-time Trading With Cody subscribers in 6 of the 7 Magnificent 7 stocks when they were just twinkle in Jim Cramer’s eyes, including having put us in Apple 21 years ago and most recently into Tesla 5 years ago). The stock recently became our third 100-bagger. I’m still sticking with Nvidia here, but I did trim a little bit in the hedge fund last week and probably will trim about 10% in my personal account soon.
  • INTC Intel (7+) — Intel’s CEO, Pat Gelsinger, has gotten this ship turned into the right direction for the first time in many years. It took many years to get the ship turned, as Pat came into this job as CEO three years ago and immediately got to work cutting inefficiencies, moving Intel into AI, and most importantly, creating the foundry side of the business wherein Intel can start making chips for other companies, including the aforementioned Nvidia. We’re still waiting for Intel to formally announce Nvidia as a foundry customer and if/when they do, the stock will likely pop more than 10% that day. All that said, Intel’s core CPU business has rebounded but we still need to see tangible evidence that they are taking share from AMD in personal computers and servers while we wait for the foundry business to take off. It does appear that Intel has caught TSMC in many respects which could help propel the foundry business into a trillion dollar valuation if all goes well in five or ten years. We trimmed some Intel near $50 and would probably buy a little back if it gets below $40.
  • TSM Taiwan Semiconductor (7) — We have owned TSMC since May 2019 when it was around $40/share and it was actually paying a pretty meaningful dividend of nearly 5% at the time (the yield is currently less than 1.5%). Semiconductors have gone parabolic this year and TSM has been one of the biggest winners as it still is a near monopoly in making the most advanced chips on the planet. With the specter of a China invasion/war with Taiwan, TSM has always traded at a discount to what it would otherwise be valued at and that’s still true today as TSM trades at less than 20x next year’s earnings estimate while AMD, which is growing half as quickly as TSM, trades at 40x next year’s earnings estimates. Global Foundries, which isn’t even growing at all and is a more direct comp for TSM, trades at more than 25d next year’s earnings estimates (we are short a little GFS as a hedge to some of our TSM/INTC long exposure). We’d probably trim some more TSM near $150 and probably buy a little back below $100. Sitting tight for now.

• • STM ST Micro (7) — ST Micro describes itself as follow: “STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through Automotive and Discrete Group; Analog, MEMS and Sensors Group; and Microcontrollers and Digital ICs Group segments. The Automotive and Discrete Group segment offers automotive integrated circuits (ICs), and discrete and power transistor products. The Analog, MEMS and Sensors Group segment provides industrial application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs); general purpose analog products; custom analog ICs; wireless charging solutions; galvanic isolated gate drivers; low and high voltage amplifiers, comparators, and current-sense amplifiers; MasterGaN, a solution that integrates a silicon driver and GaN power transistors in a single package; wireline and wireless connectivity ICs; touch screen controllers; micro-electro-mechanical systems (MEMS) products, including sensors or actuators; and optical sensing solutions. The Microcontrollers and Digital ICs Group segment offers general purpose and secure microcontrollers; and radio frequency (RF) products. It also offers application-specific standard products for analog, digital and mixed-signal applications. In addition, the company provides assembly and other services. It sells its products through distributors and retailers, as well as through sales representatives. The company serves automotive, industrial, personal electronics and communications equipment, and computers and peripherals markets. STMicroelectronics N.V. was incorporated in 1987 and is headquartered in Geneva, Switzerland.” That’s quite a mouthful. Let’s call STM an old school semiconductor company that’s probably the single cheapest but good semiconductor stock in the US. Trading at less than 15x this year’s earnings estimates and less than 12x next year’s earnings estimates, this stock is even cheaper than TSM — and it doesn’t have a Taiwan discount, rather it has a Switzerland discount, which we don’t think should be as big as China’s not about to invade Swizerland. We like the valuation at STM and we really like the way the company has been aggressively developing their silicon carbide chip business while other competitors have struggled doing so.

That’s it for now. Part III will be out tomorrow. Rock on!