🗞 Which Magnificent 7 Stock is the Cheapest?

Happy Sunday!

Here’s what’s on the docket for this week’s newsletter:

• 📈 Which Magnificent 7 Stock is the Cheapest?

• 🖥️ TSMC: The Leading Edge Semiconductor Monopoly

Let’s dive in!

Which “Mag 7” Stock is the Cheapest?

The “Magnificent 7” are widely considered seven of the largest, most influential, and highest quality businesses globally.

However on Wednesday, after US President Donald Trump announced his plan for global tariffs, every single company comprising the magnificent 7 was sent tumbling.

Now, with each of these world-class businesses in at least a 20% drawdown, let’s take a look at which is actually the cheapest:

*Note: There is no uniform valuation methodology that works for all these businesses. We chose to show 3 different metrics to account for any one-time expenses/unique accounting treatments.

1. Apple

• EV/FCF: 28.3x

• EV/EBIT: 23.9x

• Forward EV/EBIT: 22.7x

2. Microsoft

• EV/FCF: 44x

• EV/EBIT: 24.4x

• Forward EV/EBIT: 21.5x

3. NVIDIA

• EV/FCF: 49.7x

• EV/EBIT: 30.1x

• Forward EV/EBIT: 18.8x

4. Amazon

• EV/FCF: 38.7x

• EV/EBIT: 28.4x

• Forward EV/EBIT: 24x

5. Alphabet

• EV/FCF: 25.8x

• EV/EBIT: 15.6x

• Forward EV/EBIT: 14x

6. Meta

• EV/FCF: 33.1x

• EV/EBIT: 19.3x

• Forward EV/EBIT: 17.9x

7. Tesla

• EV/FCF: 1,779x

• EV/EBIT: 109.4x

• Forward EV/EBIT: 93.1x

While investors have to weigh the multiples in relation to what they think each business can earn in the future, it would appear from the results above that Alphabet is currently the cheapest across all 3 valuation metrics.

A.U.M. Podcast

Jan van Eck - Finding Secular Trends Early

This week the FinChat team interviewed Jan van Eck for the latest episode of the A.U.M. Podcast.

Jan is the CEO of VanEck, a US based asset management firm responsible for $115 billion in AUM, that has done a phenomenal job identifying major secular trends early and helping clients benefit from them.

For example, VanEck’s Semiconductor ETF has more than tripled the performance of the S&P 500 since its inception in 2012.

FinChat In The Wild: Uncover Alpha by Rihard Jarc

TSMC: The Leading Edge Semiconductor Monopoly

I want to share some findings about Taiwan Semiconductor (TSMC). It should be on the radar of all investors following the AI space and technology enthusiasts.

Breakdown of TSMC business

TSMC is the world's leading foundry. It has been for quite some time now, especially on leading-edge nodes. Looking at TSMC, the revenue breakdown of their segments is the following:

We can see that there are four essential business segments. First is the High Performance Computing revenue (HPC). HPC's revenue platform includes PCs, tablets, game consoles, servers, base stations, and more. This is the segment where the recent AI server demand is. Then we have Smartphone, IoT, Automotive, Digital Consumer Electronics, and Other Platform revenue.

We can see that in the era of 2017-2022, smartphone revenue was the leading segment, with iPhone sales growing fast. Still, since 2022 and the ChatGPT moment, the HPC revenue, mainly driven by AI server demand, has become the most significant business segment of TSMC.

What is TSMC's advantage, and why does it dominate the leading-edge market?

I summarized TSMC’s main advantages in the following points:

• Manufacturing excellence

• Customer focus

• Talented workforce

• Network effects

Network effects

The last pillar that I identify as key is network effects. With network effects, the key thing that comes up here is that the semiconductor manufactoring process has over the years become so complex and CapEx heavy that, firstly, the barriers to entry in this business from a CapEx perspective are incredibly high as we can see it from this chart of TSMCs CapEx, which I might add is only growing going forward, even with already being at a $30B annual rate:

To add on to that CapEX, all of the leading design companies, even small ones, want to work with TSMC for manufacturing, so oftentimes, TSMC sets them out on a mission to test different design processes and technology, and if they come to a solution, they will then partner with them. This means that TSMC, on top of its own CapEX, is outsourcing some of its R&D budgets to smaller companies wanting to work with them for free.

The second thing is that the vast customer base that TSMCs has, especially on the leading edge, gives them the necessary feedback from clients so that they can make improvements and perfect their processes.

On top of all that, switching from fabs is complicated and costly. Dan mentioned that it costs design companies $800M to make their design fit another fab in the 2nm node.

These network effects combine into a strong flywheel, allowing the leading company to maintain that edge for a long time.

Valuation

Let's look at some basic metrics for TSMC, like EV/EBITDA and P/E (both forward):

Meme of the week

On Wednesday, US President Donald Trump announced widespread tariffs on all countries including a few surprisingly high ones based on existing trade deficits.

One of the countries that received the largest tariffs was Madagascar, with a 47% tariff. As you might expect, this inevitably inspired many memes from Madagascar the movie.