Core Insights - Artificial intelligence (AI) is identified as the greatest investment opportunity of the current era, with a strong emphasis on the urgent need for energy to support its growth [1][2][3] - A specific company is highlighted as a key player in the AI energy sector, owning critical energy infrastructure assets that are essential for meeting the increasing energy demands of AI technologies [3][7][8] Investment Landscape - Wall Street is investing hundreds of billions into AI, but there is a looming question regarding the energy supply needed to sustain this growth [2] - AI data centers, such as those powering large language models, consume energy equivalent to that of a small city, indicating a significant strain on global power grids [2] - The company in focus is positioned to benefit from the surge in demand for electricity driven by AI, making it a unique investment opportunity [3][6] Company Profile - The company is described as a "toll booth" operator in the AI energy boom, collecting fees from energy exports and benefiting from the onshoring trend due to tariffs [5][6] - It possesses critical nuclear energy infrastructure assets, making it integral to America's future power strategy [7] - The company is noted for its ability to execute large-scale engineering, procurement, and construction projects across various energy sectors, including oil, gas, and renewables [7] Financial Position - The company is completely debt-free and has a significant cash reserve, amounting to nearly one-third of its market capitalization, which positions it favorably compared to other energy firms burdened with debt [8][10] - It also holds a substantial equity stake in another AI-related company, providing investors with indirect exposure to multiple growth engines in the AI sector [9] Market Sentiment - There is a growing interest from hedge funds in this company, which is considered undervalued and off-the-radar, trading at less than 7 times earnings excluding cash and investments [10][9] - The company is recognized for delivering real cash flows and owning critical infrastructure, making it a compelling investment choice in the context of the AI and energy sectors [11][12]

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Greater China Semiconductors** industry, particularly in the context of **AI** and its supply chain dynamics [1][2] - The industry view has been upgraded to **Attractive** for the second half of 2025, with a preference for **AI** semiconductors over non-AI counterparts [2][3] Core Insights and Arguments - **Investment Themes for 2026**: The report highlights key investment themes, emphasizing the strength of AI semiconductors and the expected re-rating of the sector as tariff and foreign exchange concerns diminish [2][6] - **Top Investment Picks**: - **AI Semiconductors**: TSMC (Top Pick), Aspeed, Alchip, MediaTek, KYEC, ASE, FOCI, Himax, ASMPT - **Memory Stocks**: Winbond (Top Pick), GWC, Phison, Nanya Tech, AP Memory, GigaDevice, Macronix - **Non-AI Stocks**: Novatek, OmniVision, Realtek, NAURA Tech, AMEC, ACMR, Silergy, SG Micro, Yangjie [6] - **AI Demand Drivers**: The demand for AI semiconductors is expected to accelerate due to generative AI, which is spreading across various verticals beyond the semiconductor industry [6][22] - **Market Dynamics**: The report notes a gradual recovery in the semiconductor market in the second half of 2025, with historical trends indicating that a decline in semiconductor inventory days is a positive signal for stock price appreciation [6][30] Additional Important Insights - **China's GPU Supply**: The report discusses the impact of **DeepSeek** on AI demand and questions whether domestic GPUs can meet this demand. It highlights that while DeepSeek is demonstrating cheaper inferencing, shipments of NVIDIA's B30 could affect the domestic GPU supply chain [6][44] - **Long-term Projections**: The report estimates that AI semiconductors will account for approximately **34%** of TSMC's revenue by 2027, with a projected **US$3-4 trillion** in AI capital expenditures expected in the remainder of the decade [19][24] - **Capex Growth**: The top six companies in the sector are forecasted to grow their capital expenditures by **62% YoY** to **Rmb373 billion** [47] - **Market Valuation**: The report includes a valuation comparison across various segments, indicating a mixed outlook for different companies based on their P/E ratios, EPS growth, and market capitalization [7][8] Conclusion - The Greater China Semiconductors industry is poised for growth, particularly in the AI segment, with significant investment opportunities identified. The dynamics of supply and demand, along with technological advancements, are expected to drive the market forward in the coming years.

Summary of Conference Call on NVIDIA and Intel Partnership Industry Overview - **Industry**: Greater China Technology Semiconductors - **Region**: Asia Pacific Key Company Insights - **NVIDIA** plans to invest **US$5 billion** in **Intel** common stock, indicating a strong partnership between the two companies [2][6] - **Intel** will continue its CPU foundry outsourcing to **TSMC**, which may negatively impact ARM-based AI PCs and AMD's laptop CPUs initially, with potential future effects on **ASMedia** in desktop PC chipsets [1][6] Core Partnership Developments 1. **Product Development**: The partnership aims to jointly develop multiple generations of custom data center and PC products, focusing on integrating NVIDIA and Intel architectures using **NVIDIA NVLink** [6][10] 2. **Market Impact**: - Intel will produce NVIDIA-custom x86 CPUs for data centers, which will be integrated into NVIDIA's AI infrastructure platforms [6][10] - Intel will also offer x86 SoCs that integrate NVIDIA RTX GPU chiplets, expanding their market reach [6][10] 3. **Market Addressability**: NVIDIA highlighted an addressable market of **150 million** notebook units, indicating significant potential for the new x86 SoC that combines Intel CPU and NVIDIA GPU [6][10] Implications for Competitors - **MediaTek**: Slightly negative outlook for MediaTek's WoA in the gaming/AI PC market due to the new x86 SoC fusing Intel CPU and NVIDIA GPU [6][10] - **ASMedia**: The direct impact on AMD's desktop CPU share is expected to be limited, but overall sentiment may be negative for ASMedia due to potential future collaborations between Intel and NVIDIA [6][10] Strategic Insights - **TSMC's Role**: The partnership does not change NVIDIA's ARM roadmap, but emphasizes TSMC's strong foundry capabilities and Intel's advanced packaging capabilities, which could enhance the integration of NVIDIA GPU chiplets with Intel CPUs [6][10] - **Market Expansion**: The partnership is expected to expand the total addressable market (TAM) for both companies, with Intel gaining exposure to NVLink-based AI infrastructure and premium laptop CPUs, while NVIDIA gains access to the laptop graphics segment and x86 rack-scale solutions [6][10] Risks and Considerations - **Market Dynamics**: Potential risks include increased competition from AMD, supply chain diversification, and the impact of US-China tensions on semiconductor supply chains [15][19] - **Financial Outlook**: Intel's 2026 EPS is projected at **~29x** with a focus on regaining market share in desktop and server segments following CPU shortages [17][19] Conclusion The partnership between NVIDIA and Intel represents a significant strategic move in the semiconductor industry, with implications for various players in the market. The collaboration aims to leverage both companies' strengths to create innovative products while navigating potential competitive and market risks.

V i e w p o i n t | 16 Sep 2025 12:20:59 ET │ 10 pages Nicholas Lai +886-2-8726-9093 nicholas.lai@citi.com See Appendix A-1 for Analyst Certification, Important Disclosures and Research Analyst Affiliations. Taiwan Semiconductors and Electronic Components & Equipment US marketing feedback - Structural AI growth continues, prefer NVIDIA supply chain on smooth product cycle transition CITI'S TAKE We were in the US meeting investors over the past two weeks. We note that US investors appear more positive on AI' ...

Core Insights - TSMC has significantly benefited from the AI boom, with its stock rising 252% since the launch of ChatGPT in early 2023, alongside impressive revenue and margin growth [2][3] Group 1: Revenue Growth and Market Dynamics - TSMC's revenue increased by 34% in August, with projected third-quarter revenue between $31.8 billion and $33 billion, and an operating margin of 45.5% to 47.5% [3] - North America has become increasingly important for TSMC, accounting for 75% of its revenue in Q2 2023, up from 56% in Q1 2020, driven by a data center buildout and major customers like Apple and Nvidia [5][6] - TSMC's business share from China has decreased from 22% to 9% due to economic slowdown and U.S. export controls [7] Group 2: Technological Advancements - Advanced chips (7nm or less) now represent 64% of TSMC's revenue, up from 35% in early 2020, reflecting the company's technological progress and demand for powerful chips [8][9] - TSMC is set to begin manufacturing chips using a 2nm process, further enhancing its competitive edge [9] Group 3: Shift in Revenue Sources - High-performance computing has overtaken smartphones as TSMC's largest revenue source, with its share rising from 30% in Q1 2020 to 60% by Q2 2025, while smartphone revenue share has declined from 49% to 29% [10][11] - The growth in high-performance computing revenue is driven by significant investments in AI and data centers [12] Group 4: Competitive Positioning - TSMC has effectively navigated industry challenges while competitors like Samsung and Intel have struggled, positioning itself favorably within the semiconductor sector [13] - The stock is trading at a price-to-earnings ratio of 28, which is lower than many AI peers, indicating potential for continued outperformance [13]

Core Viewpoint - TSMC is poised to benefit significantly from the anticipated surge in global AI infrastructure spending, projected to rise from $600 billion in 2023 to $3 trillion to $4 trillion by the end of the decade [1][12]. Group 1: TSMC's Market Position - TSMC is recognized as the world's leading semiconductor contract manufacturer, essential for advanced chip production, particularly for AI applications [5][6]. - The company has a technological edge, consistently leading in shrinking node sizes, with nearly 75% of its revenue coming from chips built on nodes of 7 nanometers or smaller [7]. - TSMC's pricing power has strengthened, allowing it to increase prices while maintaining customer satisfaction, resulting in a rising gross margin [8]. Group 2: AI and Future Growth Opportunities - The demand for AI chips is expected to grow at a compound annual growth rate (CAGR) of over 40% through 2028, providing TSMC with a substantial growth runway [9]. - TSMC is also well-positioned to capitalize on emerging markets such as robotaxis, robotics, and quantum computing, which will require advanced chips [10]. - The company is actively collaborating with major customers to secure capacity and meet increasing demand for AI chips [9]. Group 3: Investment Perspective - TSMC is currently trading at a forward price-to-earnings (P/E) ratio of 23 based on analysts' 2026 estimates, making it one of the best values in the semiconductor sector [11]. - Investors are encouraged to consider TSMC as a strategic investment to capitalize on the forthcoming AI spending boom [12].

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) is the largest semiconductor foundry globally and is well-positioned to benefit from the growth in the AI market due to its innovative chip technology and strong client relationships with major AI companies [1][2][4]. Company Overview - TSMC generated $30.07 billion in revenue in Q2, reflecting a 44% year-over-year increase in U.S. dollars [10]. - The company is recognized as the primary chip supplier for leading AI firms such as Nvidia, Advanced Micro Devices, and Broadcom, which are heavily investing in AI capabilities [4][9]. Technological Innovation - TSMC's current leading chip technology is the 3nm chip, with plans to introduce a 2nm chip that will reduce power consumption by 25% to 30% compared to the 3nm variant [5][6]. - Future advancements include the A16 node in 2026, promising a 15% to 20% power improvement over the 2nm chip, and the A14 technology slated for production in 2028 [7]. Market Growth Potential - The AI market is projected to experience significant growth, with global data center capital expenditures expected to reach $3 trillion to $4 trillion by 2030 [9]. - The big four AI hyperscalers are planning to spend $600 billion in the current year, indicating substantial growth opportunities for TSMC as the primary chip supplier [9]. Investment Consideration - TSMC's stock is valued at 26.6 times forward earnings, which is considered reasonable compared to other AI hardware companies [11]. - Given the anticipated growth in AI spending and TSMC's innovative capabilities, it is viewed as a strong investment opportunity in both the semiconductor and AI sectors [13].

Core Viewpoint - The semiconductor sector, particularly driven by Nvidia's success, has become a focal point for investors, with new concentrated investment strategies emerging in this space [1]. Group 1: Semiconductor ETFs - The VanEck Semiconductor ETF (SMH) has become a benchmark for capturing sector growth, with a portfolio that includes major players like Nvidia, TSMC, and ASML, and has grown to nearly $30 billion, up close to 30% year-to-date [2]. - Other ETFs such as the iShares Semiconductor ETF (SOXX) and Invesco PHLX Semiconductor ETF (SOXQ) also provide exposure to the semiconductor industry, attracting investors seeking concentrated investments [5]. - The SPDR S&P Semiconductor ETF (XSD) offers an equal-weighting approach, allowing smaller companies like Astera Labs and Credo Technology to have equal representation with larger firms like Nvidia [6][7]. Group 2: Nvidia's Role - Nvidia's CEO described the company's Blackwell platform as a significant advancement in AI technology, with demand being characterized as "extraordinary" [4]. - Nvidia's investment of $5 billion in Intel to co-develop data centers and PC chips highlights its growing influence across the tech sector [4]. Group 3: Investment Strategies - The Invesco Semiconductors ETF (PSI) utilizes a custom index to select semiconductor companies based on various momentum factors, providing a different exposure compared to traditional market-cap weighted ETFs [11][12]. - The newly launched VanEck Fabless Semiconductor ETF (SMHX) focuses on fabless companies, with Nvidia as its top holding, catering to investors seeking targeted exposure within the semiconductor space [13][14].

Core Insights - The semiconductor industry is crucial for the growth of artificial intelligence (AI) technology, enabling various applications from training AI models to running inference in data centers and powering edge devices [1] - TSMC, as a leading foundry, plays a significant role in the semiconductor landscape, particularly in the advancement of AI technology [5][9] Group 1: TSMC's Role in AI - TSMC's advanced process nodes are essential for producing high-performance chips that enhance computing power while reducing energy consumption [6] - The company has consistently increased its share of the global foundry market, controlling 70.2% in Q2, a rise of 260 basis points from Q1 [9] - TSMC's manufacturing capabilities allow companies like Nvidia to produce more efficient AI processors, which is critical as AI models become more complex [8] Group 2: Technological Advancements - TSMC is moving towards producing chips on a 2nm process node, expected to improve transistor density by 15% and reduce power consumption by 25% to 30% [10] - Future advancements include a 1.6nm node by 2026 and a 1.4nm node by 2028, promising significant improvements in speed and power efficiency [11] - TSMC aims to reach a 1nm node by 2030, which will enable even more powerful chips with lower power consumption [12] Group 3: Financial Projections - Analysts project TSMC's earnings growth to accelerate, with potential earnings reaching $19.38 per share by 2030, up from $13.46 in 2028 [14] - Based on a forward earnings multiple of 26, TSMC's stock price could rise to $511 in five years, representing a potential increase of 92% from current levels [15] - TSMC's current valuation at 22 times forward earnings presents an attractive investment opportunity, given its potential for redefining the semiconductor industry [16]

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