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TSMC is capex heavy. They will see margin compression with higher interest rates, at least in perception - their most over intel is only their ability to effici

by lumost 3y ago

TSMC is capex heavy. They will see margin compression with higher interest rates, at least in perception - their most over intel is only their ability to efficiently deploy capital.

klelatti 3y ago
This. The value of a stock should (in theory) be based on discounted cashflow with the emphasis on cash. A company can generate massive earnings but if it needs to invest huge amounts of capital to support those earnings then it should have a lower valuation.
Sohcahtoa82 3y ago
Isn't being CapEx heavy a sign of constant expansion, though? I would think that selling (or choosing not to buy) a stock because their P/E is low because their CapEx is high is short-sighted unless you don't think their CapEx spending is going to pay off. It's like...back in 2012, I was talking to one of my wife's relatives at a Christmas party. He said he'd never buy Amazon stock because they've never been profitable. I said they're not profitable because every dollar they make, they put back into R&D. He would have 10x his money now if he had bought their stock.
- lumost 3y ago
  Software R&D is a special type of capex, in principal - successful R&D execution buys recurring free cash flow in near perpetuity. Contrast this with TSMC who needs to outlay ~50 Billion every 2 years on a new Fab which will deprecate over ~6-7 years. If TSMC stopped buying fabs, then intel would beat them in ~2 years time - and TSMC would be out of business in 6-7 years. Software R&D may be less efficient then the above math would imply, but there is a big range between perpetuity and some depreciating time horizon. R&D can also boosts growth prospects by expanding markets.
  - Sohcahtoa82 3y ago
    > Contrast this with TSMC who needs to outlay ~50 Billion every 2 years on a new Fab which will deprecate over ~6-7 years. Oof, that's the bit I forgot. TSMC's CapEx isn't just expansion, it's replacement. They're constantly upgrading to manufacture new technologies. It makes sense now, thank you.
- cykros 3y ago
  CapEx intensity can boil down heavily to the industry a company is in. If a software company is doing a lot of CapEx, it's likely growing pretty quickly. If a manufacturing company is spending a similar ratio of its earnings, it may well just be treading water. As usual with these ratio metrics, a full understanding of the industry, or at least understanding that you can't compare apples to oranges, is important.

by lumost 3y ago

TSMC is capex heavy. They will see margin compression with higher interest rates, at least in perception - their most over intel is only their ability to efficiently deploy capital.

klelatti 3y ago

This. The value of a stock should (in theory) be based on discounted cashflow with the emphasis on cash. A company can generate massive earnings but if it needs to invest huge amounts of capital to support those earnings then it should have a lower valuation.

Sohcahtoa82 3y ago

Isn't being CapEx heavy a sign of constant expansion, though? I would think that selling (or choosing not to buy) a stock because their P/E is low because their CapEx is high is short-sighted unless you don't think their CapEx spending is going to pay off. It's like...back in 2012, I was talking to one of my wife's relatives at a Christmas party. He said he'd never buy Amazon stock because they've never been profitable. I said they're not profitable because every dollar they make, they put back into R&D. He would have 10x his money now if he had bought their stock.

lumost 3y ago
Software R&D is a special type of capex, in principal - successful R&D execution buys recurring free cash flow in near perpetuity. Contrast this with TSMC who needs to outlay ~50 Billion every 2 years on a new Fab which will deprecate over ~6-7 years. If TSMC stopped buying fabs, then intel would beat them in ~2 years time - and TSMC would be out of business in 6-7 years. Software R&D may be less efficient then the above math would imply, but there is a big range between perpetuity and some depreciating time horizon. R&D can also boosts growth prospects by expanding markets.
- Sohcahtoa82 3y ago
  > Contrast this with TSMC who needs to outlay ~50 Billion every 2 years on a new Fab which will deprecate over ~6-7 years. Oof, that's the bit I forgot. TSMC's CapEx isn't just expansion, it's replacement. They're constantly upgrading to manufacture new technologies. It makes sense now, thank you.
cykros 3y ago
CapEx intensity can boil down heavily to the industry a company is in. If a software company is doing a lot of CapEx, it's likely growing pretty quickly. If a manufacturing company is spending a similar ratio of its earnings, it may well just be treading water. As usual with these ratio metrics, a full understanding of the industry, or at least understanding that you can't compare apples to oranges, is important.