Reading is Fundamental

TSM gave us a tell!

When I was growing up, I remember seeing the frequent TV commercial “Reading is Fundamental”. It seems pretty obvious as a basic statement of the human experience, but it dawned on me today that it is a lost art “at times” in the stock market. I find myself in awe of the “investor” types whose entire schooling is “own the good companies”. Perhaps the simplicity of having some many compounder stocks in the last decade has dumbed it down. The memory of the 2022 QQQ drop from $400 to $250 has long evaporated in investors’ minds. AI saved the markets during the Fed rate hike cycle, in my opinion. Well, regardless I still find myself being a fundamental stock picker focusing on both trends, valuation and positioning. I think TSM’s earnings report gave us some important tidbits for what to expect during earnings season in tech.

TSM reported earnings last week and the details checked every box. In fact, the company seems to have visibility thru 2025 already. The stock has dropped nearly 14% since its peak on July 10th, albeit it has been on a massive tare in 2024 up more than 50%. At 18x 2025 estimates, the stock does not appear expensive on its face despite the geopolitical lens that comes in and out of focus as it did last week. What struck me about the quarter and the outlook can be summarized in a few lines: