🗞 No Chips, No Guac: Taiwan Semi's Troubling Figure

WHILE YOU POUR THE JOE… ☕️

The boys are calling for an AI bubble burst. 📉 

But,

Their focus remains on NVIDIA as the king who bears the crown (one which they hope will fall soon).

Which begs the question: If everyone sees a bubble, is there really a bubble?

There could be, but it’s unlikely to be in NVIDIA.

At least not for now…

If anything, it is Taiwan Semiconductor that holds the AI tail risk. 🐻 

Today, we’ll cover why this is through the tools I give you for free inside our free 5-day email crash course. ✅ 

Specifically, the ones in Day #4, so make sure you sign up and save this newsletter for later.

It’ll come in handy.

Speaking of chips, let’s get on with today’s email 📧…

THE MARKET’S VOTING MACHINE
Slow, Quiet, Then All at Once

Price action is very important in financial markets.

But it’s the last thing you should worry about.

First, you need to know what you’re looking for in fundamental data, so then you can make sense of what markets are trying to tell you.

For example:

• Inflation tamed, but is quickly coming back to 3% and above

• PMI data is softening, meaning inflation isn’t coming from business activity

Now, when you see Gold taking off the way it has, without other commodities like Copper and Crude Oil following along, you understand why.

We have inflation without a boost in economic activity (or stagflation for short).

So let’s look at what the market is telling us in the $SMH semiconductor ETF and the $KRE regional banking ETF.

• Semiconductors are breaking out into new all-time highs

• Banks are falling into correction territory

All told, this could mean weakness in the real economy (including liquidity and credit), while the leftover money is going toward AI investments and infrastructure.

Let me save you some time, because this 15-minute YouTube video breaks down exactly what I mean about credit and liquidity.

This way, we can move on to what really matters:

Expectations are Too High

With Jay Goldberg’s bearish call for NVIDIA came a really strong thesis:

• We are building too much capacity for AI demand that hasn’t really shown up yet

Goldberg quotes that this is the same dynamic that took Cisco ($CSCO) from the world's biggest company to a massive collapse. 📉 

And that could, in theory, be NVIDIA.

Until you connect the dots and land on who is behind this whole thing, Taiwan Semiconductors.

This stock is comfortably sitting on all-time highs, but if you notice the turquoise-shaded volume profile, there’s a real warning sign here.

This accumulation of volume can mean two things:

1. Buyers are piling up positions before the next breakout

Or

2. Sellers are coming in bulk to offload their inventory over the next quarter.

Over the past month, Taiwan Semiconductor’s short interest has risen to a new all-time high of $9 billion…

So I guess we can lean on option #2 for the reality we have today in this company.

But,

What about Goldberg’s call for oversupply being the catalyst for this collapse?

Both Intel and Taiwan Semiconductor carry a similar level of capacity utilization.

Only 30% and 40% respectively (which is depressive).

At the same time, we have Taiwan Semiconductor’s customers like $NVDA and $AMD operating at 440% and 660% capacity.

So why isn’t Taiwan Semi seeing insane demand from these bottlenecked manufacturers?

My best guess is simple:

• After this round of inventory, there is very little backlog on the AI front

So maybe Goldberg is right after all, we have an oversupply issue. 👀 

And the market knows this:

Taiwan Semiconductor falls at the bottom of the range for two very important metrics:

• Earnings growth - Lowest in the group

• Forward P/Es - Lowest in the group

This is the market’s way of saying that this industry giant is now trading at a discount for a reason.

And that oversupply reading in capacity is one hell of a reason; we could see a 30-40% EPS collapse over the next 24 months.

Buying some long-term puts, or even shorting this stock, would actually be risk-free for us.

Let me explain:

We were already buying Intel at $19 per share, as we shared on Twitter and in this very newsletter.

Now that exits have been made around $38-$40 per share, we can carry this profit into a semiconductor long/short equity strategy.

Where we can carry the short leg in $TSM for a bigger buffer (and longer timeframes) without worrying too much about our year-end P/L.

That is the beauty of this strategy, born out of the strength of our stock picking process.

Over the next six months, you’ll either be:

• Scrolling X for ideas based on someone’s useless technical analysis

Or

• Emailing me with trade ideas and getting paid for them, not to mention making life-changing returns

The how is easy. ⬇️ 

You can join our flagship program The Sovereign Trader and get started.

Then there’s option #2 for the less committed ⬇️ 

Go through our free 5-day email crash course to get the fundamentals down.

Which will it be?

Stay tuned: this short idea coverage will also be made live in our WhatsApp Deal Room, and don’t worry —you can get the free report when it’s released here.

Until then.

To your success,

G 🫰 

GO AND MAKE IT HAPPEN
What’s the Trade?

Another round of Goldman Sachs conviction is coming your way.

This time it’s in Brazilian equities, and you can bet your bottom I got digging after I heard this.

The end result is an alternative energy company that offers a 130% return potential in the coming months. 🔥 

So I guess you could say this weekend was a productive one. ✅ 

To your success,

G. 🥃