Investment Rating - The report indicates a strong performance in the Asia EM equity strategy, particularly highlighting Japan's earnings as a standout with a net beat ratio of +25 percentage points [2][7]. Core Insights - The earnings results for 1Q25 showed a strong performance across the Asia EM region, with Japan leading at +23.3%, followed by Korea (+20.3%), Singapore (+11.9%), and Thailand (+10.5%) [2][3][26]. - Emerging Markets (EM) overall reported a moderate earnings beat of +4.7%, while Asia Pacific ex-Japan (APxJ) saw a slightly higher beat of +6.0% [2][12]. - The report notes that the strong earnings in Japan are attributed to corporate and consumer activities that were brought forward ahead of tariff announcements in early April [1]. Summary by Region - Japan reported a remarkable earnings surprise of +23.3% with a net beat ratio of 25%, marking the second consecutive quarter of strong performance [7][26]. - Korea and Singapore also performed well, with earnings surprises of +20.3% and +11.9% respectively, while Thailand reported +10.5% [3][26]. - In contrast, Brazil experienced significant misses with an earnings surprise of -7.8%, and Turkey reported a substantial decline of -29.1% [3][26]. Summary by Sector - Major sectors showing strong earnings beats include Industrials (+16.6%), Communication Services (+11.6%), and Health Care (+10.3%) [4][32]. - Consumer Staples and Materials sectors reported slight misses, with Consumer Staples at -1.6% and Materials at -1.1% [4][32]. - The Capital Goods and Telecom Services industries were particularly strong, with earnings surprises of +24.4% and +21.5% respectively [4][32]. Stock-Level Surprises - The report highlights key stock-level surprises, focusing on companies rated Overweight (OW) that are expected to see increases in 12-month consensus estimates following strong earnings beats [5]. - Conversely, Underweight (UW) rated companies are anticipated to experience downgrades due to earnings misses [5]. Revenue Surprises - Revenue results across the region showed slight beats, with EM at +1.3%, APxJ at +1.1%, and Japan slightly missing at -0.1% [2][3]. - The report emphasizes that revenue surprises were generally positive, contributing to the overall strong earnings performance in the region [2][3].

Summary of Key Points from the Conference Call Industry Insights - **US Exceptionalism and Asset Performance**: The theme of US exceptionalism, USD strength, and US asset performance has garnered significant attention. Since 2012, the MSCI World Index in USD has increased by over 3 times, while a leading Norwegian asset manager's Global Equity Fund (FX-unhedged) has seen a 7x increase, indicating a greater propensity for non-USD investors to diversify their portfolios [1][1][1] - **Decline in US Student Visa Applications**: There has been a steep decline in US student visa applications, with the rejection rate doubling. Conversely, UK student visa applications have increased by 20% year-over-year, and applications for UK citizenship from US citizens have surged by 26% year-over-year, with record applications in March and April [3][3][3] - **Investor Interest in Large-Cap Tech and AI Stocks**: Investor appetite for large-cap technology stocks has risen again, with notable outperformance of the Magnificent Seven (Mag7) compared to the S&P 500. There is also increased interest in perceived AI winners, with strategies focusing on long positions in AI winners and short positions in AI-at-risk stocks approaching new highs [5][6][6] - **Strong Q1 EPS Growth and Seasonal Patterns**: The first quarter has shown standout EPS growth, with continuous news on increased use cases and adoption of technology. There is no slowdown in spending or investment, as evidenced by recent news regarding Softbank and TSMC. July is historically the strongest month for Nasdaq returns, which has been frequently cited by analysts [8][9][9] - **Impact of Fiscal Concerns on Mega-Cap Tech**: There is speculation that mega-cap tech companies may benefit from an increasingly precarious fiscal situation. Higher interest rates typically imply a higher cost of capital, but companies with strong balance sheets and cash flows may become more attractive in uncertain economic conditions [5][10][10] Economic Activity and Market Performance - **Uneven Economic Activity**: The current trajectory of economic activity is described as unusually uneven, with a notable slowdown in German weekly activity and no rebound in US retailer imports following a collapse in April and May. The European economic surprise index has outperformed the US index, highlighting the complexity of the current economic landscape [11][11][11] - **European Equity Performance**: Despite the uneven macro data and the upcoming tariff deadline on July 9th, European equities have performed well year-to-date. However, the top five largest stocks in Europe have not contributed to this performance, with both LVMH and Novo Nordisk down over 20% year-to-date [15][18][18] - **Revisiting LVMH Investment Thesis**: The investment thesis for LVMH is being revisited, with a recommendation to buy despite being below consensus for the rest of the year. The diverging outlooks for brands in the luxury sector present a compelling alpha opportunity, contrasting with the performance of European big oils [20][20][20] Conclusion - The conference call highlighted significant trends in US and European markets, particularly in technology and luxury sectors. The ongoing geopolitical tensions and economic uncertainties are influencing investor behavior and market dynamics, with a focus on diversification and sector-specific opportunities.

Core Viewpoint - Taiwan Semiconductor Manufacturing Company (TSMC) is a leading semiconductor manufacturer with a market cap of $1.1 trillion, showcasing significant competitive advantages that position it favorably in the tech industry. Group 1: Market Position and Demand - TSMC holds a dominant market share of approximately 67% in semiconductor manufacturing, with around 90% in advanced chips, providing it with substantial pricing power and limited alternatives for customers [3] - The demand for semiconductors is expected to grow, driven by advancements in artificial intelligence and technology, contributing to a 42% revenue increase in the first quarter [4] - TSMC pioneered the contract foundry model, establishing itself as a leader in the chip foundry industry since its inception in 1987 [5] Group 2: Customer Base and Profitability - TSMC's top customers include major tech companies like Apple, Nvidia, AMD, and Broadcom, highlighting its strong position in the market [7] - The company reported an operating margin of 49% in the first quarter, indicating robust profit margins and economies of scale [8] Group 3: Government Support and Valuation - TSMC is receiving $6.6 billion in subsidies as part of the CHIPS Act, along with $2 billion from the Chinese and Japanese governments, reflecting its critical role in the global economy [9] - Historically, TSMC has been undervalued, currently trading at a price-to-earnings ratio of 25, comparable to the S&P 500 [10] Group 4: Technological Edge and Competition - TSMC leads the market for advanced chips (7 nanometers or under), which accounted for 73% of its revenue in the first quarter, particularly in high-performance computing for AI [11] - Competitors like Samsung and Intel are facing challenges, with Samsung acknowledging its lack of innovation and Intel undergoing a prolonged crisis [12] Group 5: Performance Track Record - TSMC has consistently outperformed the S&P 500, with stock prices increasing nearly 300% over the last five years and 800% over the last decade [13]

Core Viewpoint - Semiconductor stocks experienced a decline due to potential U.S. measures that may end waivers allowing certain chipmakers to transfer American technology to China [1][2]. Group 1: Industry Impact - The U.S. Commerce Department is considering canceling waivers for companies like Samsung Electronics, SK Hynix, and Taiwan Semiconductor, which permit the transfer of U.S. chipmaking technology to their factories in China [2]. - Following the news, the VanEck Semiconductor ETF fell approximately 1%, indicating a negative market reaction [2]. Group 2: Company Performance - Major semiconductor companies such as Nvidia, Qualcomm, and Marvell Technology saw their stock prices decrease by about 1% [2]. - Taiwan Semiconductor's stock declined by around 2%, reflecting the broader trend in the semiconductor sector [2].

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Core Insights - Taiwan Semiconductor Manufacturing Company (TSMC) and Lam Research Corporation (LRCX) are pivotal players in the semiconductor industry, with TSMC focusing on chip manufacturing and LRCX on the equipment needed for production [1][6] TSMC Overview - TSMC is a leader in foundry services, producing chips for major tech companies like NVIDIA and AMD, and is advancing into 3nm and 2nm production [2][3] - In Q1 2025, TSMC reported a 35% increase in revenues and a 53% jump in profit, with AI-related revenues tripling in 2024 and expected to double again in 2025 [3][10] - TSMC plans to invest up to $42 billion in 2025, up from $29.8 billion in 2024, to maintain its competitive edge in advanced manufacturing [4] - The company faces challenges due to geopolitical tensions, rising energy prices, and potential weakness in the smartphone and PC markets [5] LRCX Overview - Lam Research is benefiting from the same AI trends, providing essential tools for next-generation semiconductor manufacturing [6][8] - In 2024, LRCX's shipments for advanced packaging exceeded $1 billion, projected to triple to over $3 billion in 2025 [8][10] - In Q3 fiscal 2025, LRCX reported revenues of $4.72 billion, a 24.5% year-over-year increase, and a non-GAAP EPS of $1.04, reflecting a 33.3% increase [9][10] Earnings Outlook and Valuation - The Zacks Consensus Estimate for TSMC's 2025 EPS implies a 31.8% year-over-year growth, while LRCX's estimate suggests a 33.8% growth [11] - LRCX trades at 23.16 times forward earnings compared to TSMC's 21.43 times, with LRCX's premium justified by its positive earnings momentum [13] Conclusion - Currently, Lam Research is viewed as the smarter investment choice due to its steady growth, strong demand, and lower exposure to geopolitical risks compared to TSMC [15][16] - Year-to-date, LRCX stock has increased by 27.7%, while TSM shares have risen by 8.1%, indicating differing investor sentiment towards the two companies [17]

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Group 1: Intel's Strategic Shift - Intel is committed to becoming a global foundry leader, investing over $90 billion in capital expenditures to expand its foundry operations and compete with TSMC and Samsung [2] - The foundry segment faced losses of nearly $13 billion last year, and Intel's shares have decreased by nearly 50% since their peak in 2024 [2] Group 2: Technological Advancements - Intel's new 18A process utilizes 1.8nm technology, currently in risk production, with initial batches being tested for manufacturing enhancements [4] - Innovations like RibbonFET gate-all-around transistors and PowerVia backside power delivery are expected to improve performance and energy efficiency, particularly for AI applications [4] Group 3: Competitive Landscape - TSMC holds over two-thirds of the foundry market and is expected to lead the 2nm generation, with mass production starting in late 2025 [5] - TSMC's 2nm process promises a 10% to 15% performance enhancement and up to 30% reduction in power usage compared to its 3nm node, with current yields at 60% [5][6] - Intel's yield rates for the 18A process are reported to be between 20% to 30%, while Samsung achieves 40% yields on its competing technology [5] Group 4: Market Dynamics - TSMC has a loyal customer base, including major clients like Apple and AMD, while Intel is diversifying its strategy by engaging TSMC for some upcoming processors [6] - Despite Intel's claims of improved performance with the 18A process, TSMC's chips are likely to maintain advantages in density and cost [7] Group 5: Stock Performance - Intel's stock has shown significant volatility, with annual returns of 6% in 2021, -47% in 2022, 95% in 2023, and -60% in 2024, contrasting with the more stable performance of the Trefis High Quality Portfolio [8]

Core Viewpoint - TSMC's stock has increased by 30% since the last coverage, outperforming the S&P 500's 9% rise, driven by the potential of its CoWoS advanced packaging technology to transition from a margin-dilutive capital expenditure to a high-margin growth driver in the AI sector [1] Group 1: Company Analysis - TSMC's CoWoS technology is seen as a pivotal factor for future growth, particularly in the AI market, indicating a shift in its financial dynamics [1] - The company has demonstrated a proven track record in scaling businesses, with smart capital allocation and insider ownership contributing to its success [1] - TSMC maintains consistent revenue growth and provides credible guidance, which enhances investor confidence [1] Group 2: Market Positioning - TSMC benefits from a strong technology moat and first-mover advantage, positioning it favorably against competitors [1] - The company experiences network effects that drive exponential growth, particularly in high-growth industries [1] - TSMC's market penetration in these sectors is indicative of its competitive strength and future potential [1] Group 3: Financial Health - TSMC exhibits sustainable revenue growth with efficient cash flow management, ensuring long-term viability [1] - The company has a strong balance sheet and a long-term survival runway, which are critical for navigating market challenges [1] - TSMC avoids excessive dilution and financial weaknesses, reinforcing its financial stability [1] Group 4: Valuation and Risk/Reward - TSMC's valuation is assessed through revenue multiples compared to peers and discounted cash flow modeling, indicating a favorable investment outlook [1] - The company has institutional backing and positive market sentiment, which further supports its valuation [1] - TSMC ensures downside protection while offering significant upside potential, making it an attractive investment opportunity [1] Group 5: Portfolio Construction - TSMC's investment strategy includes core positions (50-70%) in high-confidence, stable plays, alongside growth bets (20-40%) in high-risk, high-reward opportunities [1] - The company also allocates a small portion (5-10%) to speculative investments, targeting moonshot disruptors with massive potential [1]

Investment Rating - Industry View: In-Line [5] Core Insights - The semiconductor industry is experiencing unprecedented demand driven by AI advancements and geopolitical tensions [3][5] - China's AI semiconductor market is expected to see significant growth, with local GPU revenue projected to reach Rmb287 billion by 2027 [21][19] - The overall AI semiconductor market is anticipated to deliver over 30% CAGR from 2023 to 2030, with inference AI semiconductors growing at 55% CAGR [78][77] Summary by Sections China AI Semi Demand and Supply - The top six companies' capital expenditures are forecasted to grow 62% YoY to Rmb373 billion [10] - China's GPU self-sufficiency ratio was 34% in 2024 and is expected to reach 82% by 2027 [16] - The total addressable market (TAM) for China's cloud AI is projected to be US$48 billion by 2027 [18] Semiconductor Solutions and Technology Trends - Moore's Law is expected to continue with chip scaling to 3nm/2nm for better power efficiency [78] - Advanced packaging technologies like CoWoS and SoIC are being utilized to increase data speed and memory bandwidth [78] - The EDA market in China is projected to grow at a 12% CAGR from 2023 to 2030, reaching US$3.3 billion [29] Investment Opportunities - AI semiconductors are expected to account for approximately 34% of TSMC's revenue by 2027 [148] - The demand for custom AI semiconductors is increasing, driven by major cloud service providers and tech companies [120][121] - The global semiconductor market size may reach US$1 trillion by 2030, with AI semiconductors being a major growth driver [59]