I have decided that I will make this a weekly edition for the next 3 version and then move it to a monthly schedule. That way your inbox won’t be flooded with only shoutouts.

Or, you can tell me otherwise and I will do this weekly.

The goal here is not to give a long monologue about what I like about these creators. It will be just me, telling you what I like about the particular Substack and what articles I would recommend starting with. I’m not gonna bother you with the big names but instead I’ll be focusing on the more niche and smaller creators, so anything under 10k.

I am not getting paid and no one asked me to highlight them. This is just me spreading a bit of love.

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The second Substack (and he is also active on X) that I want to highlight is . JP is a mature and broad investor and research, with a focus on AI, Semiconductors, datacenters, energy and robotics. Some hot themes there.

But I believe he has a broad view on the market than just these few sectors. What I like, and that’s also where we match, is that he has a long-term view on the markets and is not that focused on daily activity and whatever small news items hit the daily headlines.

I also think he brings a certain scent of calm, clarity and level-headedness to the table that I believe is missed in the Finance-space as of late.

While everyone is chasing the next big thing and bottleneck, I believe the calm, quiet and reasonable investors is getting pushed to the background.

Some of the names he covers a lot are:

• Vertiv

• TSMC

• Marvell

• AAOI

• Credo

If that’s the type of company you like, you are in good hands here.

He recently partnered with to cover Credo, which I thought was a great piece. So that’s probably a good place to start.

Edelbridge Alpha

Should You Buy Credo?

Main Authors: Babyfolio, JP Insights…

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8 days ago · 28 likes · 3 comments · Edelbridge Alpha, Babyfolio, JP Insights, Alasdair Mann, and Daniel Koss

Another article I enjoyed (and that’s free to read), was his piece on Anthropic building their own Silicon and how that would impact Broadcom and Marvell.

Overall, What you will get is a very headed-level guy, writing in a mature and realistic way.

I believe is work is quite specialized and you can tell the research is deep, but still easy to understand for a wide audience.

You can subscribe here:

Subscribe to JP Insights

Have a great day,

-TacticzHazel

PS: if you have any suggestions for creators/substacks that I should check out. Let me know!

Imagine a drug that could help fix sleep disorders.

Imagine a drug that could boost production levels by numbers you can’t even fathom.

The drug to do it is called: ‘‘Orexin’’.

Estimates by RAND (a nonprofit research institute) put the cost of insufficient sleep in the US at up to $411B a year, roughly 2.28% of GDP, and about 1.2M lost working days. Japan loses 2.92% of GDP, the UK $50B, Germany $60B. Their model suggests that if people sleeping under six hours moved to six or seven, it would add $226B to the US economy on its own. These are 10 year old numbers, so I would assume the impact would be A LOT bigger today.

Now, add attention. A company we will discuss more in-depth later, Alkermes, counts roughly 15.5M diagnosed adults and 6.5M children with ADHD in the US. That’s why they started testing an orexin agonist themselves. It came from an observation in narcolepsy patients: the drug sharpened their focus as a side effect.

If you could increase attention in adults, imagine the affects it would have on productivity and performance in the workforce.

Sleep and hunger are both systems that keep the body in balance, and Lilly’s chief scientific officer has made exactly that comparison to GLP-1s. When those systems break, illness follows. GLP-1s showed what happens when you target a whole regulatory system instead of one symptom. Orexins have the same potential

This is the ambitious side of the orexin story, and it is still a long way out from materializing.

Right now, the primary focus is on sleep disorders and diseases, not making a ‘‘healthy’’ person more productive. But the potential could be enormous.

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GLP-1s have been the most popular medicine for years now. I know it’s weird to say ‘‘popular’’, when it comes to drugs, but I think it’s safe to say the impact the drug has had on society and health has been above all expectations. It is now the go-to drug for losing weight, but several other benefits are surfacing as well; think of benefits in the field of heart and kidney disease, but recently also sleep apnea or Alzheimer’s.

So why now?

Because big pharma woke up, and I figured, so should we. They see the potential; I wanted to see if they are right.

The biggest headline is that the first orexin agonist for narcolepsy was approved in the US. It’s the first drug that treats narcolepsy at the root instead of managing the symptoms one at a time. This is basically the FDA giving orexins the nod.

Two big pharma companies bought the pure-play orexin names at a huge premium. They are now in the front-row, ready to see how the story unfolds.

Morgan Stanley believes that Orexins could generate $16B a year in 2035, just for narcolepsy and sleep disorders. Imagine the potential if other it gets approved for other use cases as well.

I spend the last weeks digging through the trials, all the deals and the relevant numbers. In this article, I will break down what Orexins are, whether the potential is really as big as the GLP-1 hype, their potential use cases, and whether this is an interesting opportunity as an investor.

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Alibaba’s (BABA US, 9988 HK) $10.2 billion (HK$80 billion) share sale, Hong Kong’s biggest follow-on offering on record, is one of them.

Markets have immediately focused on dilution. Shares fell around 8% after the announcement, and criticism followed. Even Michael Burry, a now-native writer on Substack, announced that he had moved his entire Alibaba position in favor of JD.com, and said he would not be interested in Alibaba unless the share price were half what it is now. While Burry stated that he “cannot bless share issuance”, we contrastingly see this action as positive for Alibaba’s pursuit in the AI race and believe the investment, after some short-term pain, will be rewarded.

We are not here to rebut the opinion shared, but instead to highlight what the market is overlooking. Focus is too heavy on the shares issued and too light on what those shares buy Alibaba. The raise provides fuel for the AI buildout while preserving cash, limiting additional leverage, and retaining balance sheet flexibility for what could become an even more capital-intensive arms race.

This article was written together with . AP Research is a cross-asset thematic research team covering everything from global macro and rates to equities, FX and commodities, with a particular focus on turning big-picture themes into investable ideas. Partnering with them was the perfect combination combined our strengths and are able to provide you with both a top-down AND bottom-up approach.

For those interested in reading more of their work, TacticzHazel readers can subscribe at a discounted rate here.

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Preserving Debt Capacity

The major concern with share issuance is diluted earnings. That in turn hurts stock performance in the near term. It is a valid concern for an investor, but it does not, by itself, determine a company’s prospects. More has to be considered here.

Alibaba’s fundraising will help drive AI-led growth, and the impact on earnings will be limited if the company can improve AI payoffs. We see this raise as a bigger contributor to the AI “arms race” than the dilution itself.

Let’s start with the mechanics; after all, a few specifics never hurt anyone. The company issued 710 million new shares at HK$112.70, equivalent to roughly 3.6-3.7% of its enlarged share count, priced at an 8.4% discount to Friday’s HK close, with the proceeds earmarked for its full-stack AI capabilities. This creates a mathematical headwind for existing shareholders and was likely a contributing factor in Burry’s decision. Corresponding EPS dilution will be somewhere around 3.5%, but focusing purely on dilution risks missing another consideration:

Why equity? And why now?

Alibaba is hardly a distressed company scrambling for repairs. The balance sheet is strong, liquidity is ample, and in recent years the company has spent cash buying back stock, reducing share count by more than 11%. Switching tack towards issuing shortly after comes across as a slightly awkward capital-allocation approach. Retire equity, and then come to the market asking for more?

On the surface, it seems strange, but there is some logic to it. We would distinguish between needing capital and choosing how to finance growth. Alibaba sits in the latter camp. Financing options are abundant, and Alibaba is issuing equity so that they remain so.

As with many big tech firms, there is little certainty about what the eventual tab will be for the AI buildout. That concern is as present with Alibaba as it is with the others. Estimates rise year on year. The management team’s original three-year infrastructure commitment was (¥)RMB380bn ($56.5bn), but it is already indicating expenditure could exceed this figure. In the last quarter, capital spending jumped 75% YoY to ¥68bn ($10.1bn), against ¥23bn of operating cash flow. Alibaba is a highly cash-generative company, but not sufficiently so to finance the AI buildout at the speed the management team currently wants.

Cash burn also appears to be partly elective. A foothold in AI development means cash must go out before revenues come in, and considerable amounts at that. Servers, chips, and data centres are financed today and rewarded tomorrow. Per Alibaba’s management, servers currently repay their cost within roughly three years, with a potential for that figure to fall towards two and a half, while carrying a depreciation life of five years. At current margins and payback periods, Alibaba could bring the AI-cloud and computing business back to positive cash flow if revenue growth were restrained below roughly 33%. Instead, the company is growing at 45%, allowing it to ease pressure off the accelerator, but choosing not to.

This lets Alibaba continue growing AI infrastructure at 40%-plus rates without forcing the balance sheet to absorb the entire gap between today’s capex and tomorrow’s cash generation.

Dilution at a Fair Price

The alternative funding method would have been tapping debt markets, as has been the predominant case with US Tech. This avoids dilution, but doesn’t avoid cost. 1-year dollar funding options would cost the company about 5.4%, while Dim Sum debt could be issued at a lower rate of 2.5%. However, this option was ruled out because of shallow market depth, an RMB-USD mismatch, and limited global investor reach.

Debt also introduces an obligation. Whether the investment pays off or not, the coupon payment remains, a concern we raised recently in our exploration of Nvidia’s new SPV and the risks to AI financing. Preserving debt capacity deserves more attention than a 3.5% EPS dilution. To us, the headlines and sentiment incorrectly emphasize the risks of this raise.

Alibaba’s balance sheet strength stands out compared with China and global peers. Equivalents of $70bn in cash and investments against $39bn of debt leave the company with considerable financial flexibility. Using equity maintains that balance sheet buffer, which we view as a much preferable approach than converting aggressive but discretionary AI investment into fixed claims on future cash flows.

Preserving this strength and borrowing capacity rather than stretching themselves in the opening stages of the race may prove fruitful. We have already mentioned that Alibaba has increased spending expectations, and these expectations will continue to rise as competitors do their best to keep moving forward. Tencent and Baidu face exactly the same incentives: as one participant raises the stakes, the others must decide whether to follow.

Of course, if Alibaba spends tens, maybe even hundreds, of billions building capacity that customers do not sufficiently value, issuing shares rather than debt makes the economic outcome no different. But if you take the side that AI investment pays off, then Alibaba has limited any risks relating to a financing problem as well. For this, we value the recent decisions and see this as an opportunity to increase exposure.

On the economics, evidence suggests the underlying business is already better than the headline. The company disclosed ¥5.6bn of adjusted EBITDA from cloud computing in the latest quarter, at a margin close to 12%, while revenue grew by 45% in this period. With the server economics repaying costs in a two-and-a-half- to three-year period, as stated previously, against a five-year useful life, this implies a project-level internal rate of return of around 20-30%. Cloud revenue has also accelerated for nine consecutive quarters and just recorded its fastest growth rate in 22 quarters. If these numbers hold, a 3.5% dilution looks fairly minimal.

In an AI race where the distance is yet to be disclosed, keeping some fuel in reserve seems prudent.

Bottom-Up Analysis

Underneath the hood, Alibaba is executing well, but by no means fantastic. To draw that conclusion, we first have to understand what Alibaba is all about. Most investors still know Alibaba mainly as an e-commerce giant. While that is still true for most of its earnings, it transcended that basic premise long ago.

The best way to look at the company is to divide it into three segments. First, there were: China e-commerce, International commerce, and Cloud Intelligence.

But as of this quarter, Alibaba has started reporting its business in a different way, one that makes more sense looking ahead and where they want to end up in a decade’s time.

The new segments are:

• Alibaba E-commerce Group

• AI Cloud and Compute Services

• AI Labs and Applications

Alibaba Health, Amap, Lingxi Games, and the media assets are categorised in the “all others” segment. ​

One thing that stands out is that this “reorganisation” doesn’t clearly improve investors’ view of the company. They actually separated the model labs and consumer AI apps into their own segment.

And by doing so, they exposed the losses clearly to everyone. Instead of hiding it, management showed transparency and brought the Qwen app spending into the open.

As you can see, the E-commerce section is still responsible for the vast majority of revenue. 71.7%, so almost three-quarters of revenue still comes from E-commerce. But that is not the growth story.

Alibaba E-commerce Group

We think the best way to view this segment is as a “cash cow,” funding growth in the other segments. Revenue grew only 4%, and adjusted EBITA fell 0.6%. These numbers are underwhelming, and they are not why one would invest in Alibaba right now.

Today, this is by far the most profitable segment, with group-wide adjusted EBITA of RMB27.3bn. E-commerce produced RMB39.7bn. Cloud added RMB5.6bn, but the other segments were unprofitable overall.

China E-commerce, which is responsible for over 50% of this segment, fell 8%. Management claimed this was due to weak transaction activity and a soft customer base, a headwind they’ve flagged multiple times in the past quarters. It’s clear that the China E-commerce engine is facing weaker transaction activity and a soft macro environment.

Meanwhile, the China Quick Commerce segment grew 45% YoY. In this segment, you can find Taobao Instant Commerce, Freshippo, and on-demand grocery delivery. Losses in this segment narrowed this quarter, which is actually quite impressive given how fast it scales right now.

International e-commerce was roughly flat YoY, down about 1%. This is mostly because of geopolitical headwinds and the tariffs. A big milestone to be celebrated here, with AliExpress finally being profitable after years of draining cash to fund growth.

Global wholesale, the smallest segment, rose 7% YoY. In this segment is Accio Work, an AI agent built specifically for cross-border merchants. Accio reached over 50k paying merchants shortly after launch. ​

Looking ahead, management believes quick commerce should become profitable in FY29, and in the long term, they think it will contribute 30% of platform GMV.

A simple conclusion can be drawn: the legacy marketplace is now a cash machine, under pressure from a weak Chinese consumer, but this is where funding for the other business lines starts.

AI Cloud and Compute Services

If there’s one thing to get excited about with Alibaba, it’s the AI cloud and Compute segment. External revenue growth accelerated for the last nine quarters, and in Q2, YoY growth was 45%. Alibaba Cloud margins improved to 11.6%. And if this cloud thing is new to you, growth and margin expansion are very unusual in this line of business.

The key driver here is AI product revenue. It’s unclear what this exactly entails, but Wu recently said it’s mostly AI compute, MaaS (Model-as-a-Service through Bailian / Model Studio), and AI applications and software. Qwen is NOT in here; more on that later.

AI product revenue saw triple-digit growth for the twelfth consecutive quarter. As of the latest quarter, that makes up about 35% of external cloud revenue, up from 30% last quarter. So it’s starting to continue significantly more and more to headline numbers

This also explains why margins were up, as these products carry much higher margins than the rest of the cloud portfolio.

Everyone knows compute is scarce right now, and consensus is that this will remain true until at least 2030. This pushes GPU pricing toward the most profitable monetization model.

Alibaba claimed that it actually renewed its contracts at a better price than when they initially signed them. So for them, compute is no longer just a cost factor; it’s now more of a revenue-linked asset. CFO Toby Xu said that Alibaba runs servers for five years, and that AI servers cover their cost in three, so years four and five are free cash flow. Utilization rates for their older GPUs also seem very high. An A100 bought in 2020, or a V100 bought in 2018, is still running at full capacity today. This basically tells us that the useful life runs well past the accounting depreciation schedule.

Another important addition to this segment is T-head, a chip designer. They have already shipped over 500k previous-generation chips.

Their latest new Zhenwu M890 went live on Alibaba Cloud as a SuperNode instance in August. It runs inference for models above two trillion parameters.

As you are probably aware, this is quite a big deal. Chips and storage are the most important parts in an AI data center, and commercial GPU’s are very expensive right now. So every little percentage point they can squeeze out of their own chips flows straight to their gross margin.

Alibaba’s ambition here isn’t small; they want to do over $100B in external cloud revenue by 2030, preferably with gross margins of 20%. Management stated that they have “good visibility” on both. This means that growth should accelerate further in the next quarters, with EBITA margins expanding on top of it. But doing $100b in 2030 implies a 45% CAGR, which seems extremely aggressive to us.

Alibaba seems well positioned to capture a large share of the cloud market in China, and it’s safe to conclude that this part of the business is likely the most important growth lever to pull in the next few years.

Any meaningful slowdown here will certainly put the eyes back on the e-commerce section, and that’s not what will get investors anywhere close to excited.

Last but not least, the AI Labs and Applications section.

AI Labs and Applications

This is where things start to hurt, as this is the opposite of a cash cow. AI Labs and Applications show an adjusted EBITA loss of RMB13.9bn, against a RMB3.2bn loss a year ago. When you look at the headline numbers, this segment delivers much of the pain.

So what is causing the pain exactly? AI Model Labs, the Qwen app itself, and QwenWork, which is their new enterprise agent. Like other AI model builders, a large chunk of the losses come from training and inference costs. This also applies to the Qwen app. Luckily, the loss narrowed significantly this quarter because marketing spend came down. Management believes this downward trend should continue as marketing normalizes and training efficiency improves.

An important distinction to make here is that the money that’s being spent in this segment shows up as revenue somewhere else. Think of the MaaS revenue, API calls, inference, etc. They are all booked into the cloud segment.

So why the focus on open-source models rather than closed models like OpenAI? Wu’s argument is that a growing, open ecosystem drives more demand for compute. And would you know, Alibaba sells compute. He also said gross margins on hosting third-party open models are roughly the same as hosting Qwen. More open models on Bailian is good for Alibaba either way.

Now we are full circle. This is where the connection to the E-commerce platform starts coming through. Over 250M users have used Qwen’s agent to do shopping.

While the share offering rightfully spooked investors, insiders opened their wallets. Alibaba Group co-founder Jack Ma has joined a pair of senior executives in picking up over $100M in shares in support of Alibaba’s AI ambitions. Jack Ma bought more than HK$600 million (S$97 million) worth of shares. This is on top of the US$20 million (S$25.4 million) worth of stock that senior execs Joe Tsai and Eddie Wu had together acquired in recent days.

And we all know the saying: “Insiders only buy for one reason.”

Our Take

Betting on Alibaba is not simply a bet on its e-commerce business. It’s the belief that the cloud and AI segments will drive growth over the next few years.

But to facilitate that growth, management has to continue spending a lot of cash. Capex jumped from RMB38.7bn to RMB67.7bn, taking cumulative spend to RMB190bn of the RMB380bn three-year plan.

While the ROI on these investments remains unclear for now, this seems to be the way forward, especially given where Alibaba’s core business stands today. This is where it will build its growth engine for the next decade.

Wu received the simple question in an earnings call: where does value end up in the AI stack?

He answered that right now, nobody knows; the short-term is concentrated in chips and infrastructure. But Alibaba built all four layers precisely so the answer doesn’t have to matter. They are spreading their bets, ready to make the move when the time is right.

The large increase in capex and the latest $10.2bn share sales are what it costs to place the bet.

The bet on the future.

AP, TH

Disclaimer: both AP Research and TacticzHazel have a position in Alibaba (BABA US).

This article was written in Collaboration with . AP Research is a cross-asset thematic research team covering everything from global macro and rates to equities, FX and commodities, with a particular focus on turning big-picture themes into investable ideas.

I had a great time writing this piece together as our styles and research approach overlap a lot. I highly recommend subscribing to their newsletter via the link below.

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One of my main goals this year is to improve my writing. And one of the best ways of doing that is by reading more, a lot more. That’s exactly what I’ve been doing in the past months; reading other people’s work here on Substack.

I’ve come across so many small and big Substacks that I really liked, that I figured it would be a waste not to share some of those writers with my own readers.

So here’s what I’ll be doing: I’ll spotlight one creator every Sunday (if it fits my schedule).

It won’t be a long article; it will be just me, telling you what I like about the particular Substack and what articles I would recommend starting with. I’m not gonna bother you with the big names like Citrini and Doomberg, but instead I’ll be focusing on the more niche and smaller creators, so anything under 10k.

I am not getting paid and no one asked me to highlight them. This is just me spreading a bit of love.

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The first Substack that I would like to highlight is Daniel’s Deep Dive.

You might have guessed it already from reading his name, but Daniel writes deep dives. And he writes them well.

In general, he focuses on companies that are quite unfamiliar to the general crowd. While that doesn’t always do wonders for his reach and growth, I think it’s actually what makes him stand out against most other creators here.

He finds unique companies with strong business models, and usually they have a theme behind them with strong tailwinds. It’s a great Substack for idea generation as there’s always a name that you have never heard of.

One of his best articles was one that he did with my Friend Ozeco, also a very good content creator here on Substack. They wrote the most extensive water primer I’ve ever seen—a unique theme that’s still quite undiscovered.

Daniel's Deep Dive

Water Primer: The Most Mispriced Resource on Earth and the Defining Investment Theme of the Next Two Decades

Table of Contents…

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4 months ago · 88 likes · 14 comments · Daniel's Deep Dive and Ozeco

In addition, he has done two other deep dives that I thought were really great. One was Texas Pacific Land, a very unique company that has been around for years, but is really very much under the radar. Truly a beautiful compounder.

Daniel's Deep Dive

Texas Pacific Land: A Business That Practically Prints Money

A few weeks ago I was having dinner with a group of friends who are just as passionate about investing as I am. At some point the conversation shifted to interesting opportunities, and one of them mentioned an American company in the oil and gas space that seemed rather unremarkable at first glance but immediately stood out once he shared its numbers. A…

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9 months ago · 72 likes · 18 comments · Daniel's Deep Dive

And the second one was a deep dive on Badger Meter, which is a water infrastructure company.

Daniel's Deep Dive

Badger Meter: The Future of Water Infrastructure

Today we dive into the world of water (pun intended), and more specifically into the future of smart water infrastructure. This industry often flies under the radar, yet it is becoming increasingly important and stands at the beginning of a structural shift, as the need for a safe and efficient water supply reshapes the industry as a whole…

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8 months ago · 61 likes · 21 comments · Daniel's Deep Dive

He writes in a similar style as myself, it’s not aimed at institutional or academic level investors, but it’s aimed at the regular joe and should be easy enough to understand for everyone.

If you like what I do, you’re sure gonna like what he does.

You can subscribe here:

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Just curious, should I make this a weekly thing or should I stick to my own work?

Is this not something that interests you as a TacticzHazel Subscriber?

Have a great day,

-TacticzHazel

PS: if you have any suggestions for creators/substacks that I should check out. Let me know!

First, I’ll give you a high-level summary of the major trends I saw in these filings, and then I’m gonna give you 7 examples of stocks that everyone seems to have scrolled passed in these filings.

Before we start, I want to reiterate that you should NEVER mindlessly follow the moves you see in these filings. I personally never copy them. I only use them for idea generation. And the reasoning for that is quite simple:

• The superinvestors have a completely different goal than most retail investors. For them, it’s mostly about long-term wealth generation in a stable, relatively risk-averse way. They aren’t focused on maximizing profit alone, but also on limiting downside.

• The second reason is most obvious: these 13F filings are at least 45 days old. The moves they made are outdated and may have been reversed today.

• The trades shown in these filings are only their US holdings; some superinvestors have broader portfolios with assets around the world.

• Because they manage such large sums of capital, many companies are out of limits for them. There isn’t enough liquidity.

• Last but not least: it never shows WHY they made a move, and it also doesn’t show short positions. Did they rotate? Was it a paired trade? Finding out why they made certain moves is almost impossible, and therefore you should treat them as such.

The main website I use to track the 13F filings is Dataroma. Free to use.

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1. The first big trend: Superinvestors love their mega caps

Top buys this quarter still mostly include the mega-caps: Microsoft, Meta, Visa, Amazon and Alphabet. I don’t think there’s anything to be learned here, as these companies are also in the ‘‘most sold’’ list. This is basically trading activity in the large caps, and I see it each quarter. These are also the ‘‘top owned’’ stocks, so it makes sense they see the most activity.

Looking at the top buys by % I noticed something else:

2. Superinvestors like gold and commodities

Ashland Global is a premier specialty materials company, and Eldorado Gold is a Canadian company that owns and operates gold mines in Turkey, Greece, and Canada. Also high on the list was Orla Mining, a major senior gold producer.

3. Greg Abel likes to buy

The Berkshire Hathaway filings showed one of the most aggressive quarters in years. Berkshire nearly tripled its stake in Alphabet, plus they added to Delta, Lennar, Macy’s, and NYT. I can’t say I’m the biggest fan of the last three, but I really like Alphabet.

Interestingly, other big names like Pershing Square, Altimeter, and Druckenmiller’s Duquesne all sold out of their Alphabet positions.

4. Rotation out of AI infrastructure

In Q1, there was a noticeable trend: Nvidia, Altimeter, and Appaloosa all loaded up on names like CoreWeave, TSMC, and semis. In Q2, the reserve seemed to take place. (Tiger Global cut Nvidia, TSMC, Microsoft, and Meta all in the same quarter). And Nvidia barely made a move. So the enthusiasm for these names was less than in Q1.

5. Rotation into boring compounders

The lack of enthusiasm seems to correlate with the love for “boring “ compounders. Berkshire bought Delta, Lennar, and Macy’s, all beaten-down names. Ackman added to names like Visa, Mastercard, and he’s back in Netflix. Tepper rotated out of Micron into industrials and consumer cyclicals

So this is a trend I see across the board: toll-booth names and strong cash-flow-generating companies are back in favor.

So what should we do with that information?

Not too much. Again, these filings are old. A lot has happened since: the war in Iran, the new Fed Chair, rising bond yields, and possible inflationary pressure.

It makes sense for the rotation into boring compounders to continue, but we will only know once the new filings are out.

Semis and memory have pulled back significantly, so maybe Superinvestors see a bit more value there, too.

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7 moves by Superinvestors that everyone probably missed

I started by reviewing the filings of my favorite Superinvestors. Most of these funds have strategies that align with my own. They don’t hold a million different names and usually lean more toward buy-and-hold. Druckenmiller is the exception, as he is more theme-driven and rotates fairly quickly.

Here is my shortlist of funds I like to follow a bit more closely:

• Dev Kantesaria - Valley Forge Capital Management

• Chris Hohn - TCI Fund Management

• Stanley Druckenmiller - Duquesne Family Office

• Warren Buffett - Berkshire Hathaway

• Pat Dorsey - Dorsey Asset Management

• Christopher Bloomstran - Semper Augustus

• Altacapital

• AKO Capital

• David Tepper- Appaloosa Management

A few things that stood out to me:

• Alex Roepers added Ashland Global Holdings to his portfolio, making it a 17.5% Position.

• David Tepper’s Appaloosa Management made a big bet on TSMC, adding 25% more even at these levels (which I think are actually quite attractive). Druckenmiller did the same, making TSMC his second largest position.

• Lee Ainslie: Slightly reduced his Nvidia position, only to add 50% to his AMD holding.

• Li Lu, who is seen as one of the better value investors, added to Pinduoduo. And let’s be honest, that’s not a stock that’s loved right now.

• Pat Dorsey added to Booking Holdings, SPGI and Applovin. Value at a discount?

• Terry Smith opened new positions in Uber and Mastercard ( both around 5% of portfolio)

• Prem Watsa, who runs Fairfax Financial, made two big bets: Orla Mining (21.55% now) and Eldorado Gold Corp (new position at 16%)

• Howard Marks: Added to Sea Limited, a company I own myself and really like here

All of the moves I highlighted deserve a bit more research, but that’s not for now. Because I also saw 7 funds making some very interesting bets in names that aren’t talked about that much right now.

First one is Christopher Bloomstran with his bet on Builders Firstsource ($BLDR)

Builders Firstsource

Builders Firstsource is a company that’s been on my radar for a long time. I did a fairly extensive X thread on them last March, but they have been on my radar since 2021. I initially held a position, sold it, and ran it up over 100%, but I ended up selling in 2024.

Builders FirstSource is a large materials supplier for the construction industry, and it’s located in the US. Think of them like a hardware store or a specialized distributor, but with a big focus on large industrial clients.

After COVID, the stock went ballistic, going up almost 1700% in 4 years. Since then the stock has fallen close to 70% from the top. But underneath, this is still a very well-managed company.

BLDR is a classic “good business, bad cycle” setup. BLDR doesn’t do well during periods where housing demand is depressed, and that’s exactly what’s happening now. But if you have a long-term horizon, now might be a great time to follow Christopher Bloomstran and his bet on BLDR.

Housing demand moves in cycles, and usually it’s a good idea to buy companies like BLDR in downcycles. Keep in mind, however, that they missed Q2 earnings, cut 2026 guidance, and just took a wave of price-target cuts. So momentum is not working in your favor right now.

Bloomstran’s reported price is $70.65, which is around the price BLDR trades today.

Viking Global Investors bought the second names most investors missed, this is a bit more well-known, but definitely not popular right now.

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Just a quick heads-up on some changes I made to the Investment Library. After some feedback I made the following changes:

• The portfolio tracker now shows my daily P/L

• It also shows the real-time weighting of each stock in my portfolio

• The sentiment range is now automatically updated:
  - Below entry level is: Undervalued
  - Between 0-10% of entry level: Attractively valued
  - Between 10%-30%: Fairly valued
  - Above 30%: Overvalued

• I will try to update the entry levels as often as I can, but only if I believe it’s necessary. I am not a trader so it doesn’t make sense for me to update these levels on a daily basis.

This is how the overview looks right now:

• Changes I make to the portfolio are updated in the Buy/Sell-list when I make them (I will continue to post updates in the discord and Substack chat as well. Below is my track record this year.

  

With these new changes the current sentiment list was updated as well.

• Nebius: Attractively valued to richly valued

• ASML: attractively valued to fairly valued

• Dlocal: attractively valued to undervalued

• Microsoft attractively valued to fairly valued

• Sk Hynix: undervalued to attractively valued

I also updated the following entry levels

• TSMC: buy level raised to $365 to better reflect the strong growth and strong earnings and my updated figures in the valuation model

• Nebius: raised the buy level to $185 after a great earnings report, still would consider a decent margin of safety before aggressively buying

  ---

This update was free for everyone as I wanted to highlight what I do behind the scenes, but if you want full access to this investment Library, that is reserved for premium members

Upgrade to premium

More information can be found in this post:

If you have trouble accessing the drive, please send me a dm.

Cheers and have a good night,

-TacticzHazel

PS. I’m currently working on building a website in which I will incorporate these, and many more features! Gonna take a few months but I really think this will be a great addition to my offering.

Disclaimer

The content I share is for educational and informational purposes only. It should not be considered financial, investment, or trading advice. All opinions expressed are personal views and are not guarantees of future performance. Investing involves risk, including the potential loss of capital, and past results do not indicate future returns.

Before making any investment decisions, you should conduct your own research or seek guidance from a licensed financial advisor. I am not responsible for any financial outcomes resulting from actions taken based on the information provided.

By engaging with this content, you acknowledge and agree that you are solely responsible for your own investment choices.

Two months ago, I posted my “15 favorite stocks to buy now” article. This was very well received. Link below.

One of my main goals is to provide my readers with interesting setups. I don’t have the cash or desire to enter every opportunity I see, but that doesn’t mean I don’t see them.

That’s where articles like these come in.

The goal today: highlight 10 companies that provide an interesting risk/reward setup at current valuation. Some are turnaround candidates, some are riding momentum, some are downright high quality and compounding away.

I will give you a brief overview of why I think each company looks interesting right now and, of course, what risks/headwinds, if any, you should consider. No investment comes without risk, but I’m sure you all know that.

First, I want to highlight the companies I discussed in the latest update. Here is how each name has performed since then.

• Axon Enterprise (up 35%)

• Adyen (made a big move last week - up 16% after a great earnings report and now up +30%)

• ServiceNow (up 23%)

• Dlocal (up 16%)

• Mastercard (up 14%)

• Alibaba (up 12%)

• Nvidia (up 12%)

• Constellation Software (up 6%)

• Novo Nordisk (up 3%)

• Xiaomi (up 1.5%)

• Kraken Robotics (down 6%)

• Stif France (down 8%)

• Netflix (down 8%)

• Samsung (down 12%)

Buying the full basket of these names would have given you an 8.5% return. I’m gonna be honest here, that’s pretty good. But that’s not what these posts are about.

This is a 2-month return, and that could’ve gone either way. Most of these setups are long-term plays, and that’s how they should be treated. They are simply for idea generation and to give you insight into what I look for in the market.

Now, let’s find out which 10 companies I have lined up for you this time, in no particular order.

I want to reiterate that this is not a recommendation list. These are companies I find interesting at current levels, but each requires much more research.

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10. TSMC

The first company I want to discuss is TSMC. I recently did a deep dive, and the more I looked, the more impressed I was with where they stand today. And the beauty is, I don’t think they are very expensive at all.

TSMC plays a critical role in the AI buildout, yet many investors still overlook it. The main reason is the “China risk.” Ignoring it because of the China risk would have cost you 300% gains in the past years. The risk is real, but that doesn’t make TSMC a bad company—au contraire.

TSMC is unique, which should excite every investor. It’s a fast-growing company, with one of the largest moats in the world, and if you look up “pricing power in the dictionary, it says TSMC. These features more than offset the bear case on China risk.

On top of that, the market has multiple tailwinds and rising demand. And right now, no one can build high-end chips like TSMC does, and certainly not at the current yield and volume.

Samsung and Intel are doing all they can to close the gap, but for now they are still behind. TSMC still owns roughly 90% of the advanced-node market, and the AI buildout keeps pulling more demand toward the exact chips TSMC is best at making. Multiple years of tailwinds can be expected.

The China risk is the main headwind to consider. When valuing it, take a decent margin of safety to account for it. Margin compression and capex climbing toward a very likely 200B+ over the next three years are also key changes to TSMC’s business model and could create headwinds in the next few years. Customer concentration is high, and a slowdown in hyperscaler capex would hit TSMC hard.

Valuation-wise, I think TSMC looks quite attractive. A forward PE of 21x for a company growing revenue at this pace, with this much pricing power, still looks very reasonable to me. And yes, I know using a PE is oversimplifying it.

I have built a full valuation model, and even with fairly reasonable assumptions, I get a 17%+ CAGR in the next five years.

You can check out my full deep dive below; it’s free to read.

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9. SK Hynix

Now I want to talk about SK Hynix, which I recently added to my portfolio at $131. The article below explains a bit more about my thought process when I opened the position but here’s a quick summary of my thesis.

The main reason I added SK Hynix is to get direct exposure to the memory sector. The consensus seems to be that HBM is still one of the largest bottlenecks in the AI infrastructure buildout simply because every new AI server needs more memory than the last one.

All forecasts for the Memory/HBM sector show fast growth. SK Hynix is well placed to benefit from this growth, as it is the market leader right now and has a very strong relationship with NVIDIA, the key player in this buildout.

In 2026, Nvidia sent about 70% of its HBM4 demand to SK Hynix for the Vera Rubin platform. They also started a multi-year technology partnership in June to support Nvidia’s growth ambition.

This led to strong results. Revenue in Q2 was ₩79.3T, operating profit reached ₩60.5T, and the operating margin was 76%. In other words, three-quarters of current revenue translates to operating profit.

Right now, SK Hynix trades at a forward PE of just 3.6x.

You might think, “Fine, then let’s go,” but there are two ways to look at this low multiple. The first is that it’s cheap. The other way is that the market is pricing in a peak, which often happens at the top of a memory cycle.

I do, however, think that things look a bit different now than before. SK Hynix has signed multiple long-term contracts with around ten customers, and its net cash now stands at ₩69.4T. That’s not something you usually see from a company at its peak.

The biggest risk is that memory makers could price themselves out of the market. Investment spending is rising fast as SK Hynix works hard to meet future demand. But it’s not just SK Hynix expanding quickly. All the big memory players are doing the same.

With more capacity expected from China, the industry could end up hurting itself. It’s still unclear if that will happen, and I think it could take much longer than most people expect.

SK Hynix is not going anywhere, but its margins might come under pressure.

Still, I think this is one of the best ways to invest in this memory super-cycle.

The last part is for paid subs only. I cover:

• A defense micro-cap that no one knows

• Two SaaS names in a sell-off

• Large-cap defense player in a drawdown

• One of the best ways to play the energy bottleneck

• Large US investment firm

• Internet giant going through a tough period.

• Retail stock on the verge of a possible rebound

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We all know. And yes we’d love to see the decline stagnating.

But let’s look at these numbers first:

Most important metrics to watch usually are: TPV, Revenue, Margins and Gross profit and take rates.

TPV (total payment volume) came in at $17.7B, which is 80% YoY (in constant currency) and 26% QoQ. This is the 7th consecutive quarter of 50%+ growth, and continued acceleration over the last 5 quarters. They processed more this quarter than in all of 2023

This translated to

• $400M in revenue

• $127M in gross profit

• Operating profit of $64M

• Net income was $55M

These growth numbers are great and exactly what we want to see. Guidance was even increased for both TPV and Gross profit. TPV from 50-60% to 60-70% and gross profit was raised to 25-30% YoY.

Operating profit guidance was maintained. And I guess that’s one of the things the market doesn’t like.

TPV retention was 188% and net revenue retention was 153%, 5th straight quarter above 140%. This metric measures both how well DLocal retains its existing customer base and how much additional revenue it gains from those clients over time.

Customer concentration (which some see as a risk) went from 62% to 63% for the top 10 merchants.

Now the most probably reason for the small drop in AH, the ever declining take rate story.

Normal take rate = Revenue / TPV → $400M / $17.7B → 2.26% (this was 2.39% last quarter)

Net take rate = Gross profit / TPV → $127M / $17.7B → 0.72% (this was 0.84% last quarter)

As we said, gross profit is falling. This is not new as management has guided for a 22.5% and 27.5% at the end of last year. Pedro flagged it in the Q4 2025 and Q1 2026 calls. He noted the 2025 investment cycle would pressure H1 margins via annualized OpEx, with operating leverage expected to kick in over the next few quarters / mainly in H2 2026 as costs moderate.

The main reason for the lower take rate seems to be the shift from cross-border to local-to-local. LtL now represents the 61% of TPV (growing at 141% YoY), while the higher margin cross-border ''only'' grew 46%

Also, Asia and Africa are looking weak. Gross profit $25.0M, -1% YoY and -27% QoQ on flat revenue; margin fell from 47% to 34% in one quarter.

As long as TPV and indirectly gross profit continue to grow as fast as it does now (and the guidance indicates it will continue), the declining take rate shouldn't worry you. Management has stated multiple they focus on growth instead of take rate. A bit of a slowdown would be welcome though.

I guess the market also doesn’t like the EPS miss, but I honestly could care less. This is not the focus of DLO right. The focus is on growing that TPV as fast as they can, while maintaining the highest take rate possible. But the growth is key here.

Still, with these numbers I don't see any reason why this won't be green tomorrow.

If you have any questions or remarks, feel free to shoot.

Cheers,

TacticzHazel.

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Novo reported earnings last week, and the numbers were definitely solid. With that, I mean better than almost everyone anticipated earlier this year.

While there was a lot to like, there were also headwinds and risks worth discussing. We will end the article with my new updated assumptions for the valuation models. Small teaser: things are looking much better than they did two quarters ago.

First things first, they raised both their FY26 sales numbers and operating profit guidance, ABOVE analyst consensus. FCF guidance was also raised to DKK45-55B (from 36-46B). We’ve gone from multiple guidance cuts to guidance raises, a trend that was more than welcome.

A lot of the positive momentum comes from the launch of the Wegovy pill. The Wegovy pill has done 5M prescriptions since launch, which is by far the strongest GLP-1 launch ever. They beat everyone’s expectations by a landslide. This strong launch was more than welcome, as I believe if it had been disappointing, the price cuts would have murdered Novo’s growth trajectory.

Another positive development was the EMA approving the Wegovy pill and the 7.2mg dose. This was in the cards and not a big surprise, but it’s good to see we can now start tracking numbers in the EU as well.

The launch in the UK was already underway, and the numbers look promising. After the launch, Novo regained market share, which was driven by 300k patients on the Wegovy pill, more than expected.

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These are solid numbers across the board, and it’s great to see some positive headlines and no more guidance cuts.

Apparently, the market expected better. While the headlines look great, we are certainly not out of the woods yet.

Novo still guides to negative growth in 2026, and they remain very unclear about how that will translate into 2027. Guidance for FY 2026 sales was raised to -3% at the midpoint, but of course, we want Novo to return to growth, not stall at negative growth or around break-even.

Another thing that has me slightly worried is the margin profile. Gross margins fell to 78.2% from 82.7% a year ago. This is due to pricing pressure (which was expected) and higher manufacturing costs. This is still a fantastic margin profile, don’t get me wrong, but no one likes declining margins.

Some investors are worried that the Wegovy pill is putting pressure on the margins here. I doubt that’s the case, or at least, we can’t tell from just this quarter. Novo disclosed about DKK 3B in one-time costs this quarter, tied to right-sizing its manufacturing capacity agreements. Add that back, and gross margin lands close to 82%, almost the same as last year.

The 2027 price cuts are also not visible in the 2026 headline numbers. Starting in Jan-27, Novo will cut US list prices by ~50% on Wegovy and ~35% on Ozempic. That’s gonna hurt cash flow and margins, and I believe most people are underestimating the impact it could have. We will take this large possible headwind into account in our valuation models.

Another thing that stood out to me is that US sales are actually shrinking. It was offset by international growth (+8%), but the US remains the most important market (accounting for 2/3 of sales), so stagnation is not what we want to see.

US Wegovy injectable sales reportedly fell by around 22% at constant currency in Q2, accelerating from roughly -12% in Q1. This means that the injectable business is shrinking fast, and pill growth is mostly just offsetting that decline rather than adding net growth. And on top of that, Wegovy pill revenue came in slightly below consensus (DKK 3.2B vs. 3.3B expected).

This is consistent with heavy self-pay/discount pricing dragging down revenue per script even as unit volume increases rapidly.

Another thing that went fairly unnoticed was the results they posted for REIMAGINE 4, their head-to-head, open-label, 68-week phase 3 trial in patients with type 2 diabetes.

On weight loss, CagriSema hit non-inferiority vs. Tirzepatide: 15.2% weight loss for CagriSema vs. 15.8% for Tirzepatide at 68 weeks. On HbA1c, it did not hit non-inferiority. 1.9 percentage-point reduction for CagriSema vs. 2.2 points for Tirzepatide.

The safety profile was clean, consistent with prior CagriSema data.

This is the SECOND head-to-head loss against Tirzepatide this year.
CagriSema is great as it will be another sales driver, but it continues to fall behind Tirzepatide. It won’t be the best-in-class Novo hoped for.

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Let’s sum this up. Still a mixed bag in my opinion. Definitely some positives with guidance increases, strong momentum with the Wegovy pill, and promising sales numbers in the UK.

The declining numbers in the US are worrisome, and the fact that Cargisema seems unable to compete with Tirzepatide is not great either (although this is not new). The expected price cuts in 2027 provide another serious headwind that we should not underestimate.

A lot of new information to take into account, warranting an update to my valuation models.

Is Novo Nordisk still a buy today? Let’s find out.

As usual, I kept the same framework and just made a few changes to the assumptions based on the new information in the Q2 Report.

All valuations models are available in the Google Drive for paid subs.

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We were ready for him to turn our wishes into gold, but he has arrived too early too many times now.

As Gandalf once said: “A wizard is never late, nor is he early.”

Turns out, Burry is not a wizard. He is a genie. And apparently they do not arrive on time.

His timing wasn’t even on time for the most brilliant bet the stock market has ever seen. In case you never watched The Big Short, he was premature with this bet as well. Burry first warned his clients in 2005. By May 2005, he started with $60M in CDS positions, building to over $1B in subprime mortgage shorts by October 2005. He was 3 years early.

He likely spent many hours and lonely nights behind his desk. He had to fire people and was hit with lawsuits. He almost lost it all.

And then he made roughly $100M+ when the market finally crashed. The big-balled contrarian thinker got rewarded.

But as Anthony Bolton famously said, being a contrarian is hard. It goes against fundamental human instincts, behavioral psychology, and institutional realities.

Being a successful contrarian requires an intense ability to back your own convictions, but you must avoid letting that conviction mutate into blind stubbornness.

And that’s where Michael Burry seems to have ended up, in a stubborn place of being right. Right in the middle of the lamp, coming out before it’s being rubbed or cleaned.

I know this is not common consensus, but I think Burry is right more than he’s given credit for. His current major bet is that the AI capex cycle is inflated and self-financed in a way that can't be sustained.

To back up this belief he is now short on;

• Nvidia (rolled to June 2027)

• QQQ ETF (extended to February 2027)

• iShares Semiconductor ETF (SOXX)

• Micron

• Caterpillar

• Tesla

• Oracle at $144

• Nebius Group (NBIS) at $211.77

As you can imagine, the wizards of FinX and other retail chads were not giving him a standing ovation.

Especially Nebius, one of the golden stocks right now, hit a snare. A small sample of the very nuanced and balanced takes on the wonderful X-platform. Funnily enough, the stock is down 10% since his short.

I think Burry is directionally right. Maybe even timing-wise, but that’s too early to tell. But the first cracks have been showing. Semis sold off dramatically.

The big memory names fell almost 50% and so did the Neocloud giants. Most of it is just a violent rerating to some more reasonable levels, but it also feels like the whole AI buildout theme is a bit more precarious and fragile than people seem to believe.

Circular financing has been a thing since 2025, maybe even 2024. This brilliant picture is already more than a year old and it would look even worse if it were made today.

Burry also believes much of the current and future AI demand is not driven by actual end customers but is instead financed off-balance-sheet.

He doesn’t have to nail the AI build-out thesis, there are many relevant macro themes that could prove him just as right;

• The Japan carry trade

• The tensions in the Middle East/ Strait of Hormuz

• The new Fed chair and his battle against rising inflation

• November mid-terms

• High long-term bond yields.

• Increased levels of debt in capex financing

All of these themes could lead to a large sell-off and especially hit high beta names that we see a lot in the AI buildout sector.

But for now it seems that as long as the hyperscalers throw money against the wall, he’s gonna be wrong, timing-wise.

What I like about Burry is that he’s thought-provoking. He’s somewhat of a perma-bear, but we need those. We need to be kept on our toes. We need contrarian views. And preferably vocal ones as well.

The big difference between now and 2008 is that he’s not sitting lonely behind his desk listening to the echo of his own thoughts.

He’s now the #2 Finance Bestseller. Some hate him for it; they say he is a charlatan just milking money on bad takes.

Nobody is getting any better sitting behind a desk and writing for yourself and your mom. I love that he’s sharing his thoughts, as controversial as they sometimes might be. I learn from them, take them into account for my own thesis, and use them to build or lose conviction.

Instead of being quiet and doing nothing, Burry did something we should all do: listen more to Christina Aguilera.

He even built his whole Substack empire on the eloquent, well-written lyrics of our girl Chrissy.

If you wanna be with me
Baby, there’s a price to pay

I'm a genie in a bottle
You gotta rub me the right way

Now he makes a fortune while waiting for the market to come to him.

Here’s what I’m gonna do; I will listen to him, read his work and learn from it. There’s so much value in the minds of bearish (or realistic?!) thinkers like , Peter Schiff and Ray Dalio. Not because they are always right. But because they provide us with an alternative view.

But maybe the best thing to do is; listen to his critics on FinX. The bright minds with their Claude subscriptions. Because at least they are ALWAYS right.

-TacticzHazel

If you ask me, they are in the top 5 most influential and most important companies in the world. They hold an essential, central role in the AI buildout and the semiconductor space and are still often overlooked by many investors due to China risk. While the risk is real and we should certainly not dismiss it, I don’t believe it’s a reason not to invest in TSMC. There is just too much to like.

In this deep dive, I will help you understand the important role TSMC plays in the current AI buildout and why it has been one of my core holdings for many years.

For this deep dive, I chose a new setup: a thesis first, then the deep dive. Let me know what you think!

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1. The thesis in a nutshell

TSMC makes almost every advanced chip in the world. Nvidia’s GPUs, Apple’s iPhones, AMD’s chips- all of it gets built in TSMC factories. There is nobody else in the world that can do what they do, and certainly not at the same scale. And for now, it looks like nobody can close that gap anytime soon.

TSMC is dominating the field, holding 73% of total market share (Q1-26) in the Pure Foundry market. Looking at the 3 nm/5nm-and-below sector, multiple sources claim it’s even above 90%. They are miles ahead.

Samsung and Intel are doing everything they can to catch up to TSMC. But that’s easier said than done. Reportedly, Samsung has finally achieved decent yields on its 2nm node, and a recent analyst report claims that Intel has also fixed some of its yield problems. However, TSMC is still far ahead, already shipping 2nm with strong and consistent yields. Right now the 2m, segment is only 3% of wafer revenue, but they are ramping up quickly.

This consistency and high yield matter more than you think. When companies like NVDA look for a chip producer, they want security, consistency, and speed. And they also want the most advanced chips that are available to them. TSMC is the only one that can deliver on all these points at this time.

The numbers are just as impressive and underwrite their strong position and growth story. They did $40.2B in revenue (33.7% YoY increase) in Q2-26, with a 67.7% gross profit margin. And that profit margin has been rising quickly, having been only 53% in mid-2024.

To keep up with demand, they have raised their 2026 capex plans. They mentioned on their Q2-26 earnings call that, given strong structural demand, they would raise their capex budget to the $60B–$64B range. Previously, they guided between $52B and $56B.

All of the above lead to only one conclusion: TSMC is essential to many big names in the semiconductor and AI buildout space. Without TSMC, many of the technological advancements we see today would not be possible.

This is exactly the type of company I like. A company that sits in the center of it all, and customers cannot progress without them. That position not only gives them pricing power but also a stronger moat than most investors credit them with.

I could end this deep dive right here, as the above should be enough to convince you that TSMC is truly unique. If it’s not on your radar, it certainly should be.

Now let’s find out how it all came to be this way.

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2. How it all started

TSMC was founded in February 1987, but the story actually starts in 1985. This is when the Taiwanese government sought to establish its identity in the tech industry. The government recruited the perfect person to get this project going: Morris Chang.

Morris Chang worked his way up the ranks at Texas Instruments in the US. He wasn’t some low-level engineer; he was truly outstanding. At that time, he was responsible for running Texas Instruments’ entire global semiconductor business.

Taiwan gave him a unique offer: he could build his own company from scratch. He took the job and was responsible for running Taiwan’s Industrial Technology Research Institute (ITRI), the country’s state-backed tech research arm.

Just two years later, he pitched an idea that no one else had before. He wanted to build a company that only manufactures chips designed by OTHER companies.

Back in those days, nobody did that; companies like AMD and Intel only manufactured chips for themselves. He pitched the idea to Intel and TI, but both said no.

Then a company that I know well as a Dutchy, Philips, said ‘‘yes, let’s go. So in February 1987, TSMC was born. Taiwan’s National Development Fund contributed 48%; Philips accounted for roughly 27-28% (along with some technology licenses); and the remainder came from private Taiwanese investors.

Late in that first year, Intel needed extra capacity for older chip designs, and they came knocking on TSMC’s door. TSMC had to undergo a rigorous, even brutal, qualification process, but it passed. That gave them instant credibility with the rest of the industry, and from that moment onwards orders started rolling in.

What makes TSMC so unique is not so much the chips it produces as the pure-play foundry model. Back then, if you wanted to produce your own chips, you had to start from scratch and build your own multi-billion-dollar factory. TSMC removed that requirement entirely and it was actually what the world needed.

This new way of working is the reason companies like NVIDIA, Qualcomm, and eventually Apple could exist as “fabless” companies. In essence, they design, TSMC builds. Without TSMC’s model, the entire modern chip industry would look completely different today.

From this point onwards, growth is spectacular, and it still is today. Here is how their timeline looks from 1994 onwards, which is when they first got listed on the Taiwan Stock Exchange.

As of today, Nvidia is TSMC’s biggest customer, overtaking Apple in 2025. Apple’s annual spend grew from $2B in 2014 to roughly $24B in 2025, a 12x increase in just over a decade. Nvidia grew even faster in the last few years; that says it all. Nvidia generated 19% of revenue in 2025, and Apple did 17%.

Now roughly 90% of the most advanced semiconductors on earth are made in TSMC facilities. They also have a dominant market share in the less-advanced semiconductor segments.

Where TSMC operates today

TSMC is headquartered in Taiwan, in the Hsinchu Science Park. This is the same place where ITRI (Industrial Technology Research Institute) is based, which isn’t a coincidence. Most of TSMC’s production still happens in Taiwan, across multiple science parks (such as Hsinchu) in Central and Southern Taiwan.

But in recent decades, they have expanded globally as well.

They now have:

• Two sites in the US (Arizona), with more under construction

• One fab in Japan

• One fab in Nanjing, China, and one in Shanghai

• And they are opening a fab in Dresden, Germany through a joint venture with ESMC.

Morris Chang stepped down as CEO in 2005, only to come back in 2009 during the financial crisis to save the company. He then fully retired as chairman in 2018. He was replaced by Dr. C.C. Wei, who has been CEO since then. More on him later.

In the span of a little more than 30 years, they’ve grown into one of the most important companies in the world. They created the foundry model and built it from scratch and have been dominating the space ever since. This is only possible with a great, scalable business model and a major growth engine behind it.

3. What does TSMC do and how do they make money?

The first golden rule that we should get crystal clear is that TSMC NEVER competes with its own customers. That means they do not design chips or put their name on any product. They only have one job: they manufacture. This is important, as their clients can be 100% sure their designs are safe and that it won’t someday bite them in the ass for having done business with TSMC.

The relationships with companies like NVDA and Apple are built on this core foundation. They are 100% certain that TSMC will never undercut them or launch their own chips. That guarantee is a big reason customers keep coming back, even when it means paying a premium.

3.1. What do they do exactly?

Now we get to the fun and technical part. I will try to keep it high-level and easy to understand. Before we get into the technical side, I recommend you watch this video; it provides a great high-level overview of what they do. At 2:35, the production process starts.

In a nutshell: TSMC takes a blank silicon wafer (think of a smooth, round disc made of purified sand) and builds millions, sometimes billions, of tiny on/off switches called transistors onto it. If you can string enough of these together, you get a chip that can actually calculate, store and process information.

They do this layer by layer using light and chemicals. This process is called lithography.

An easy to follow step by step would look like this:

• TSMC shines light through a mask — basically a stencil with the chip’s circuit pattern cut into it.

• Wherever the light passes through, it triggers a chemical reaction on the wafer below.

• That reaction etches the pattern directly into the silicon.

• Repeat. Then repeat again. A few hundred times, stacking pattern on top of pattern like floors of a building, until a finished chip comes out the other end.

TSMC doesn't build these EUV machines itself. Only one company on Earth can: ASML, based in the Netherlands (proud to say, as a fellow Dutchy). Their partnership is strong, and they work together more deeply and on a level playing field than most customer/supplier relationships.

The “node” names you hear thrown around, like 3nm or 2nm, refer to a generation of the process I described. While most people think that the 2nm actually refers to the transistor being 2nm wide, that’s actually not the case anymore. That stopped being true a couple of years ago.

The naming isn't meaningless though: a smaller node number still reliably means a denser, faster, more power-efficient chip. Just don't take the number literally.

Once that chip is manufactured the next step is packaging. TSMC also offers this, and it’s called advanced packaging. Most noteworthy is a technology called CoWoS. CoWoS is a technology that stacks a logic chip next to high-bandwidth memory on a single package.

CoWoS is used to build Nvidia’s AI GPUs, and it’s become a bottleneck (and moneymaker) in its own right.

Some numbers that will help you understand the scale of it all:

• In 2025, TSMC ran 305 different process technologies.

• They manufactured 12,682 distinct products for 534 customers.

• And they did that across facilities that produce more than 17M 12-inch-equivalent wafers a year.

3.2. How does that translate to revenue and profit?

This is the beautiful part of their business model. TSMC charges customers per wafer, and the price depends on the process technology. A 2nm wafer is vastly more expensive than a 28nm wafer. That’s because it’s harder to make but also because demand is way higher, especially if you take supply into account.

We will look into the financials a bit more at the end of the deep dive, but I will provide you with the latest numbers to give you a sense of how crazy their business model is. These are their Q2 numbers:

• Revenue: $40.2B

• Gross profit: $27.2B (a 67.7% gross margin)

• Operating income: $24.3B (60.3% operating margin)

• Net income: $22.4B (55.6% net margin)

Such margins are unheard of for a manufacturer. ‘‘Normal’’ manufacturers would move the world to do 20-30%, but TSMC manages to convert two-thirds of every dollar that comes in to gross profit.

Chips that are used in AI are TSMC’s most complex and highest-margin product, and it’s especially this part that now dominates their product mix. So that should really improve their margin profile in the next few years.

3.3. How do they compare to competitors?

Their main competitors are Intel, Samsung, Globalfoundries, and UMC.

Intel used to be an IDM (Integrated Device Manufacturer) for decades (basically means they design and build their own chips), but they are pivoting to a merchant-like foundry like TSMC. They are still in the infancy phase, with total foundry revenue just under $6B and an operating loss of $2.1B. Intel’s newest 18a node is ramping up though.

TSMC’s latest chip technology is N2, and it works really well; about 90% of chips come out well. Intel’s answer to N2 is the 18a node. The problem Intel has is reliability. Numbers range from 50% to 85% (for usable chips), but honestly, no one seems to know for sure. This is still in the ramp-up phase, as Nvidia and AMD are just testing 18a for now, not committing yet.

Samsung is also an IDM with a foundry division that competes directly with TSMC. Samsung had real yield problems on its 2nm process for years, but that has shifted lately, and yields are reportedly closing in on the 70% mark needed for solid mass production. Samsung has landed real customers again, including Nvidia and Tesla for parts of their 2nm nodes. For now, Samsung remains smaller and less consistent than TSMC, and it’s not clearly ahead of Intel either.

GlobalFoundries and UMC are in a totally different ballpark because they gave up trying to catch up with TSMC and are now focusing on more ‘‘mature’’ nodes.

Revenue-wise, they are just way too small to make a difference. For comparison, GlobalFoundries Q1-26 was lower than what TSMC makes in one day.

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4. The Opportunity + positioning

The bull case for TSMC rests on 4 angles: its dominant market position, an expanding overall market, several levers to accelerate growth, and a moat that is becoming increasingly deep rather than shallow.

4.1. TSMC’s dominant market position

What I like a lot with TSMC is how dominant their market position is. TSMC is responsible for 73% of the global pure-play foundry market. They are totally outcompeting their rivals and by a large margin.

Technologically, they are far ahead, but it’s also about the trust and customer relationships they’ve built over the years. This is hard to replicate, even for big names like Samsung and Intel.

TSMC also tracks a broader number which it calls "Foundry 2.0,". This number includes packaging, testing, and even in-house chipmakers like Intel and Samsung's own factories. Looking at this wider angle, TSMC held 40% of the market in 2025, up from 34% in 2024.

Going a level deeper, 3 nanometers and smaller, the gap gets even wider. The numbers differ widely because there are no public trackers, and TSMC is also somewhat unclear about its exact leadership position. What’s undisputed: nobody else is shipping advanced nodes at TSMC’s yields or speed today.

4.2. The overall market is expanding fast

TSMC is clearly taking market share, and on top of that, the market itself is growing.

TSMC estimates that the worldwide semiconductor market, excluding memory, reached $611B in revenue in 2025, representing a 19% increase over 2024. Management believes the market will continue to grow at a 10% CAGR through 2030, primarily driven by AI and the 5G/6G buildout. Similar numbers are expected for the Foundry 2.0 market.

I found these numbers in the FY-2025 report, but in the latest earnings call Wei mentioned that demand was ‘‘stronger and stronger and stronger “ than management had previously assumed. Now they aim for a $1.5T market by 2030.

PWC comes to a similar conclusion: they forecast the global semiconductor market will reach $1T by 2030, with an 8.6% CAGR. These numbers are from September 2025, so they probably need upward revision as well to reflect the advancements made in the AI buildout and the related demand.

Morgan Stanley is on the same path as TSMC; they project a $1.5T market by 2030.

The picture is clear: the market is expanding, and it’s expanding fast. TSMC is gaining market share in a rapidly growing market, making its growth path over the next few years even more exciting.

4.3. How can they capture this growth?

4.3.1. The technology roadmap

They have an incredible pipeline, or what they call the technology roadmap. TSMC never stands still, and they are always looking to improve and enhance their offering.

The 2nm chips have entered high-volume production in Q4-2025 and are ramping up fast in 2026. Next up are the N2P and A16 chips (enhanced versions with a new power-delivery design) expected to enter production in H2-26.

Next up is A14 in 2028 (their most advanced nanosheet technology), and the A13 and A12 variants are expected to be ready for production in 2029. These are even more enhanced versions of the A14 chip. These numbers and chip names don’t mean much on their own, but the key takeaway here is that every new node introduces something new to sell to their customers, likely at an even higher premium than the older version.

I won’t go into more detail here, but if you want to learn more about the different chips, you can find more information here.

4.3.2. Advanced packaging (CoWoS)

Another angle they are playing is advanced packaging. Once a chip is manufactured, it needs to be stacked and wired to memory. This is what CoWoS does.

I do not like the use of the word, but CoWoS has been the real bottleneck limiting AI chip supply. TSMC is doing all it can to fix that, as it is ramping up capacity from 35,000 wafers a month in late 2024 to between 120,000 and 140,000 wafers a month by the end of 2026.

4.3.3. COUPE - Silicon photonics

This level is less well known, as it’s still quite new. With data centers scaling fast and the need to connect tens of thousands of chips, copper wiring is hitting the so-called physical wall. It’s too slow and consumes too much power. TSMC’s solution for this is COUPE (Compact Universal Photonic Engine).

This is an advanced silicon photonics manufacturing platform designed to transmit data via pulses of light rather than electricity. It integrates electronic integrated circuits (EICs) and photonic integrated circuits (PICs) using 3D chip stacking.

In 2025, TSMC achieved data transfer speeds of 200 GB/s in collaboration with several major customers. TSMC expects its co-packaged optics technology can reduce power consumption for data transmission in data centers by more than 50%.

During the Q2-26 earnings call, Wei stated that production had started and he added that COUPE would become “a fairly important technology in the next few years”.

The technology is still in its early stages and, as of now, doesn’t provide a strong revenue stream. Nonetheless, it represents another layer that competitors would have to replicate from scratch to catch up.

4.3.4. International expansion

TSMC continues to expand internationally. They already have one fab running in Arizona and are now building 2 more (one 3nm fab and one 2nm fab). TSMC recently announced another $100B investment in Arizona, on top of the existing $165B commitment they already had. That brings the total US commitment to $265B, and they now cover 10 fabs, 2 advanced packaging facilities, and an R&D center.

They are also opening a second fab in Kumamoto, Japan. Last but not least, a facility in Dresden, Germany. The focus on Dresden is purely on automotive chips.

Expanding overseas is not just a matter of choice. Apple, Nvidia and other customers are asking for it. They want to get chip production closer to their own design teams and end markets. It’s also partly because they don’t want to be dependent on a single country for their single most important components.

On top of that, they are getting paid to move abroad. The US CHIPS Act has provided TSMC up to $6.6B in grants for the Arizona buildout. Japan and Germany offer similar incentives for their fabs.

4.3.5. Agentic AI and CPU’s

It seems that we are entering a new era in the AI race. We are slowly shifting from just asking questions to AI actually taking actions (this is called agentic AI). With this shift, CPUs are becoming increasingly important. TSMC is convinced that whichever CPU architecture wins, the winner is very unlikely to be a non-TSMC customer.

4.3.6. Switching costs

This is not an opportunity per se, but I think it fits here as well, as the switching costs are what make the above so compelling. Once a customer chooses TSMC for its chip design, they are committing for a long period. It’s simply too costly to switch for a small price improvement somewhere else. For most customers, price is also somewhat irrelevant as they are more focused on high yield and performance.

When a customer chooses TSMC, they are also choosing years of joint manufacturing and engineering before a single chip is made. Some of these build-up periods take more than 5 years even to reach production.

4.3.7. The capex wall

Building a fab is very expensive, and TSMC's capex spend shows it. Doing over $60B in 2026 alone sets the tone. If a competitor wants to enter their space, they will have to commit significant resources. There are not many that have that kind of spend ready and available. Not even Samsung, with all their might and resources, has managed to come close. Samsung's foundry business burned cash for years, and a real return to profit is only now coming into view, with some reports pointing to as early as Q3 2026, still years behind where TSMC has been operating.

5. Risks and Headwinds

5.1. The China risk

The China risk is the most commonly cited risk when people discuss TSMC; that makes sense as it is also the most obvious one. Ask 10 people why TSMC trades at a discount, and 9/10 would tell you ‘‘China risk.“

I believe that the threat is real, but not for the reasons many believe. A full-blown invasion is very unlikely. This view seems to align with the US Director of National Intelligence, who concluded that China is unlikely to invade Taiwan in 2027. China would strongly prefer unification without force, and is fully aware that an invasion would trigger significant international backlash and a strong reaction from Western nations.

The TSMC thesis does not need a full-out war to be broken. A much more likely scenario is a blockade or quarantine. A blockade aimed at disrupting power, commodities, water, chemicals, or ASML machines would hurt just as much and could completely limit production.

The tough part here is that the risk is binary and very hard to model or predict. I think the easiest way to look at it is: the risk is real. Apply a bigger margin of safety than you usually would to account for it.

5.2 The Strait of Hormuz

Asian countries are especially exposed to disruptions related to the Strait of Hormuz. Taiwan imports 95% of its energy, and they get a third of its LNG from Qatar. TSMC alone consumes roughly 9% of Taiwan’s total electricity, so the vulnerability there is quite obvious.

Management addressed this on the Q1 earnings call and believes that prices will, without a doubt, rise if there is a prolonged disruption in the Strait of Hormuz. The impact on profitability is just very hard to quantify.

In the latest Q2-26 earnings call, this Strait-of-Hormuz risk was not addressed anymore, but since then a lot has happened. Iran and the US continue to go back and forth, and until the conflict is fully resolved, this is a real risk to keep in mind. It could hurt margins and profitability, though I believe the overall impact should be quite low.

5.3 Customer concentration + hyperscalers

TSMC’s top 10 customers accounted for 78% of 2025 revenue, up from 76% in 2024 and 70% in 2023. They have the same problem that ASML has: only a handful of customers really matter. Management doesn’t seem to think this is a problem, and I agree with them.

C.C. Wei said in the latest earnings call:

This is not a concern, because customers growing bigger is a good thing and there are plenty of new players entering AI.

The bigger risk is the hyperscalers’ capex spend, which is skyrocketing right now. No one believes capex won’t increase over the next few years. The range varies wildly, but the trend is clearly up.

Luckily, TSMC’s growth is tied to that spending. But it also provides a risk. This AI buildout doesn’t have to be a bubble to hurt; just a slowdown or pause can lead to a fast change in sentiment. TSMC is open to that risk, just like all the other semis that play a central role in the buildout.

The rest of the business is not strong enough to fully offset the losses here. Wei himself noted on the Q2 call that, aside from AI-linked products, consumer demand remains soft.

5.4. TSMC’s Capex and margin compression

We’ve already concluded that capex is increasing; that in and of itself is not a problem. The result of the capex is. New technology is very expensive at the beginning. Every time TSMC launches a new node, the first wafers cost a fortune to produce, yields are low, the equipment is brand new, and everything is still being tuned.

International expansion is also gonna be a drag on margins, since it costs more to run. Management expects that 2-3% of margin headwind in the early years, widening to 3-4% as those sites scale up.

And there’s also the depreciation issue. The costs of building the fabs don’t show up in the financials right away; they’re spread out over many years. So the record spending happening right now will keep showing up as a cost for years to come.

All of the above leads to a less rosy margin path than what’s happening right now. Management’s long-term guidance is only “56% and higher through the cycle”. This is something to take into account for our valuation models.

6. Management

TSMC does not have a fancy CEO or management team. I actually think 99% of people in the world have never heard of C.C. Wei. He’s not someone who likes the spotlight, but he has something I value even more: experience and loyalty.

He started as a chip engineer and worked his way up through the entire company, from the fab floor to the big man’s office.

6.1. C.C. Wei - Chairman and CEO

C.C. Wei, from now on “Wei,” started as CEO in 2018 and was appointed Chairman in 2024. He joined TSMC in 1998 after working at Chartered Semiconductor Manufacturing in Singapore and STMicroelectronics in Texas.

He worked his way up through almost every rank imaginable before becoming CEO. He knows the company inside out. He holds a PhD in electrical engineering from Yale.

I would describe him as blunt and not very flamboyant. He’s known for giving very short yes/no answers in earnings calls instead of the polished corporate speak you see at many other investor presentations. He’s also one of the few who keep their hair grey and don’t dye it. Former colleagues describe him as unassuming personally but relentless once committed, with a reputation for handling demanding customers exceptionally well.

The support
Supporting him are the Co-COO’s Chun and Mii. Both report directly to Wei, along with HR, finance, legal, and corporate planning; everything else reports through the two co-COOs.

The CFO is Wendell Huang, who has also been with TSMC for a very long time.

Above the team sits a board of 10 members, of whom 7 are fully independent. Former AMAT CEO Michael Splinter and former Sunoco chief Lynn Elsenhans are the most noteworthy members. The board’s job is to oversee management and review succession.

Since Wei was born in 1953, he could be nearing retirement. No single successor has been named as of now. That’s where Mii and Chun come in. They let them run operations for a few years, then let the board members pick who will take the throne once Wei retires. They did the same exercise a few years ago before Wei was appointed.

The interesting part is that they have moved up through the ranks, just Like Wei. They started in the fabs and R&D programs as well. For a company this important, I think it says a lot about their culture that they take this route.

6.2. Management’s alignment

At first glance, you might not be impressed here. Wei owns only 0.03% of TSMC, with 7.2M shares. Chun owns about 0.02%, and Mii owns close to nothing. None of the high-up board members own a significant stake, let alone one comparable to that of a founder-led company.

That makes sense though, as TSMC was never founder-owned to begin with; it started as a joint venture between the Taiwanese government, Philips, and private investors, and has operated under a professional management model rather than a founder-controlled one from day one. This is also very common in Taiwanese corporate governance overall and certainly not unique to TSMC.

This does not mean management is not aligned; it’s actually the bonus structure that makes a difference. In 2025, Wei’s total compensation package was about 0.14% of TSMC’s net income. This is a figure set by the Compensation and People Development Committee and paid mostly as cash bonuses tied to results, not as equity grants.

This is a good thing, as this means management pay scales with numbers the whole company gets judged on.

TSMC’s management has a reputation for discipline and soberness. Management doesn’t consist of fancy and extravagant members. It’s a team focused on protecting pricing power and a long-term view.

The way they handle price says it all. The leadership team is willing to hold the line on price with customers who, for the most advanced chips, genuinely have nowhere else to go. They think in long-term relations, decades, not years. They built long-lasting relationships based on mutual trust and alignment.

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7. Financials

7.1. Revenue

It doesn’t take a rocket scientist to see what’s happening here. The trend is clearly upwards and accelerating. Revenue in Q2-26 was $40.2B, which is 33.7% YoY and 12% QoQ%. A record quarter for TSMC, and at the high end of their own guidance.

Important for our valuation model, management raised FY 2026 revenue guidance to slightly above 40% YoY. Actually quite mind-blowing numbers for a company of this size.

Revenue is shifting more towards the advanced nodes. Advanced technology”(7nm and below) was 77% of wafer revenue in Q2-26, up from 74% in Q1-26.

Most of the revenue comes from the US, as that’s where TSMC’s major customers are (Nvidia, Apple, etc.).

• North America 75%

• Asia Pacific ex-China/Japan 9%

• China 9%

• Japan 4%

• EMEA 3%

Keep in mind that the Taiwan number says nothing about TSMC’s production facilities and fabs. The above is purely a reflection of Taiwan-based fabless customers, such as MediaTek.

Guidance for Q3: $44.6–45.8B, which would be another ~37% YoY increase at the midpoint.

7.2. Margins

We already concluded that margins look fantastic for the average manufacturer; luckily for us, TSMC is not average. The thing you are witnessing here is pure pricing power. It’s pricing power, given it’s the only real option at the leading edge.

These are the LTM numbers:

• Gross profit margin: 64.23%

• Net profit margin: 50.37%

• Free cash flow margin: 25.75%

Q2-26 gross margin came in at 67.7%.

Margins have been increasing because the mix has been shifting towards HPC chips (AI accelerators, data center silicon), which have better economics than smartphone and IoT chips.

It is, however, very important to know that management expects margins to compress in the next few years. That’s not because the demand isn’t there or pricing power is disappearing.

The first main reason is the ramp-up of the 2nm node. New nodes always start at a higher cost because of lower yields and higher unit costs. They get more profitable as they mature, and the margin pressure should eventually fade. Management noted that this ramp-up could lead to 3-4% pressure on margins in the second half of the year.

The bigger problem for margins is the overseas expansion. Overseas fabs are more expensive to operate due to higher labor and construction costs and a less mature local supply chain. Management expects this expansion could dilute margins between 2-4% over the next few years.

7.3. Capex

Because TSMC is doing everything they can to meet the fast-growing demand, capex has been rising rapidly. Mid-year guidance was raised again this quarter, from $52-56B to $60-64B.

Beyond 2027 remains unclear as management hasn’t given a figure yet. The CFO refrained from answering when being asked in the latest earnings call;

“ We do not have a number to share with you “

He did follow it up and said:

“even more significantly higher than the past three years.”

Extrapolating current numbers, we could easily see $200B+ in capex over 2026-2028. Most of that will be spent on installing and expanding capacity for 2nm, 3nm, and 5nm, as well as advanced packaging, at their new fabs.

Regarding capex-to-revenue, management said they don’t manage to a specific capital-intensity target, but expect revenue growth to continue outpacing capex growth (this was during the Q1-26 earnings call).

7.4. Balance sheet

TSMC’s balance sheet looks good, very good. They have a net cash position of roughly $65-$70B. Most large industrial companies run net debt, not net cash.

They have almost no short-term debt. Long-term debt was 28.55B at the end of 2025, which is small for a company of TSMC’s size. Most of it is corporate bonds with fixed interest rates ranging from 0.41% to 4.63%, and maturities stretching out as far as 35 years.

Capex is being funded out of operating cash flow, so TSMC is still self-funding its expansion for now. There’s no need to take on debt for now. Management has stated that their focus is on “liquidity” and a “solid investment-grade credit rating”. They are usually quite conservative about taking that on, so this approach makes sense.

It will be important to watch how the increased capex and higher dividend will be funded going forward. For now, there’s plenty of cash margin on the balance sheet and certainly no need to take on any more debt.

7.5. ROIC and ROCE

TSMC doesn’t report its own ROIC (return on invested capital) or ROCE (Return on capital employed) numbers. Fiscal AI did its own calculations when we did the math with the numbers TSMC published for FY2025.

ROIC= NOPAT ÷ Invested Capital = above 40%.
ROCE = EBIT ÷ Capital Employed (Total Assets − Current Liabilities). Another very strong number, almost 30% in FY 2025, even increasing in the latest Qs.

Capex is increasing, but the beauty is, so are the returns. The only conclusion to draw here is that spending is being absorbed by demand.

There’s likely to be a dip in both ROIC and ROCE due to overseas expansion, which is deliberately lower-return for strategic reasons.

7.6. Dividends + Buybacks

A very sharp eye might see a flat line here. That’s because TSMC doesn’t really do buybacks, ever. I haven’t found any mention of why they don’t do it. It just looks like they prefer other ways of returning capital. I believe they still see better opportunities elsewhere to deploy their cash.

Their main way of returning capital to shareholders is through dividends.

Dividends have been growing in absolute terms, but because net income has grown much faster, it appears to be a declining trend. That means TSMC is outpacing a growing dividend policy.

The current yield sits at 0.77%, which is fine. But this is not why one would invest in TSMC. Just a small bonus on top of a great company.

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8. Valuation

8.1. Metrics

Before we get to the valuation models, I want to look at some metrics to get an overall sense of the valuation.

8.1.1. PE + Forward PE

TSMC’s current PE ratio is 31x, and the forward PE is only 21x. Looking purely at these metrics, I’d argue that this is very low for a high-quality company like TSMC.

They have a huge moat, are still fast-growing, have strong demand, and have excellent margins and a stellar balance sheet.

If this were a US company, it would look a whole lot different. But as long as there is a China risk premium, I think valuation based on metrics will always look on the ‘‘cheaper’’ side.

Compare this to a similar company in the same sector with a large moat and good economics: ASML. ASML trades at a 53x PE and a 30x forward PE. Almost twice as expensive.

8.1.2 EV/FCF

Usually I take EV/EBITDA, but in this case I choose EV/FCF. That’s because EBITDA ignores capex, and that doesn’t make sense for a capex-heavy company like TSMC.

There’s a big drop in Q2-26, which can be attributed to a fast rise in capex spend. Operating cash flow was strong and rising (up 12%), but capex rose faster (up 41%).

An EV/FCF of 58x and a forward EV/FCF of 41x are not cheap. Above 50x is usually reserved for hyper-growth or pre-profitability names. The number is currently inflated due to capex, which is weighing on the cash multiple. FCF is being compressed due to the company’s largest capex cycle in its history.

Looking at EV/EBITDA, things look a lot more ‘‘realistic’’, trading at 25x. If and when the capex cycle slows down, this multiple should be able to compress again.

8.2. EPS calculator

To get a general feel for EPS growth and how that translates to stock price, I use the EPS calculator in Qualtrim.

My assumptions:

• TTM EPS: $13.86

• EPS growth rate: 20%

• Multiple: 25x

This gives us a 15.57% CAGR from today’s price. I’d argue that both the EPS growth rate and the multiple are slightly conservative, and you still get a market-beating return.

If we take a slightly higher growth rate, 23% and a higher exit multiple (close to what TSM trades at today), of 28x, the return is above 20%

8.3. Valuation models

I will keep the explanations for the different models brief, as I want this to be easily digestible.

8.3.1. Base case

The base case is my model, which I feel most comfortable with and which I assign the highest likelihood of occurring.

Revenue growth falls from 24% to 14% in 2031. That’s not a very ambitious assumption, taking into account that TSMC’s revenue growth has been above 20% for a very long time now. TSMC guides for a 25% CAGR through 2029, so I’m quite far below their guidance.

I think you can argue that my assumptions are too conservative, especially in the near term, as the FY-2026 guidance is way above these numbers at 40%. But for now we hold it this way.

Margins compress from 66% to 63%; we have discussed this before (2nm ramp-up and overseas expansion).

The exit multiple is 25x, just below the current multiple, but fair given its growth path and moat. If you think the China discount disappears, this multiple is arguably on the low side as well.

Takeaway: even with conservative assumptions, you get a very strong return of 17.75.

If we take a higher PE, of 28x or 31x (to better reflect TSMC’s quality), you get a return of 20%+.

8.3.2. Bear case

The bear case is our counterweight here. Growth is still strong over the next few years, but it fades to only 7%. We are not forecasting a decline here because I think TSMC is too strong a company, and demand is also too strong.

Gross margin falls faster than expected, all the way down to 59%. This is because of headwinds in the ramp-up and overseas expansion.

The exit multiple drops to 21x due to slower growth and the permanent drag of China risk.

This gives us a CAGR of 4.56%

8.3.3. Bull case

The bull case is based on management’s comments that demand is getting “stronger and stronger and stronger,” and management now points to a $1.5T market by 2030. TSMC is set up to take a very meaningful piece of that pie.

In the bull case, revenue growth falls from 30% to 17% by 2031. Gross margin stays steady around 66% as the shift towards higher-margin HPC and AI provides a margin cushion.

We take an exit multiple of 31x, which is not very high for this growth path

That gives us a CAGR of 30.72%

8.3.4. Weighted average CAGR

Now the weighted average CAGR. Here, we assign weights to the 3 cases based on the likelihood of each occurring.

• Bear case: 20%

• Base case: 60%

• Bull case: 20%

That gives us an average weighted CAGR of 17.71%, which is above our 15% target.

With higher multiples, and that could definitely be the case, I think it’s very possible to reach a 20% CAGR from here.

Just a side note before we continue: these models don’t fully reflect the capex plans. Capex is not directly visible in earnings; it’s more of a slow bleed into the income statement over many years. So a ‘‘simple P/E-model like this doesn’t show the high capex spend over the next few years. It only shows the depreciation drip, which we have reflected in our margins.

9. Final thoughts

TSMC is not a hidden gem, far from it, but it is still overlooked. Most people in the investing world know what they do and why they are more relevant than ever. However, I think many investors still skip it because it is not a US company and because of the China risk. It makes sense, but that risk has been priced in for many years now. Ignoring the risk factor would have given you a 300% return in the past 5 years.

The risk is real, but it’s also very hard to model. Therefore, I believe it’s wise to make conservative assumptions and apply a high margin of safety here. There is a tight line between a real risk and simply ignoring the company entirely.

The bull case is clear: demand is picking up, nobody can build these chips like TSMC does, and the current yield and volume. Samsung and Intel are trying their very best to close the gap, but for now they are still behind. TSMC still owns roughly 90% of the advanced node market, and the AI buildout keeps pulling more demand toward exactly the chips TSMC is best at making.

That does not mean there are no risks; there certainly are. The China risk is the main one. Margin compression and capex climbing towards a very likely 200B+ over the next three years are key changes to TSMC’s business model. Customer concentration is high, and a slowdown in hyperscaler capex would hit TSMC harder than most people assume.

Valuation-wise, I think TSMC looks quite attractive. A forward PE of 21x for a company growing revenue at this pace, with this much pricing power, still looks very reasonable to me.

I think TSMC provides a unique opportunity. It’s one of the best and most important companies in the industry, but it still trades at a very reasonable valuation. A combination like that is rare and doesn’t come around often.

I’ve held TSMC for many years, and nothing in this deep dive has led me to believe I should change that. If anything, it made me want to hold it longer and maybe even buy some more shares during corrections.

As always, my paid subs will be informed when I decide to pull the trigger.

Thank you for making it to the end. I hope you enjoyed this deep dive.

If you have any questions, remarks or feedback, feel free to reach out to me.

I would love to hear your thoughts on this deep dive, so if you have any remarks or comments, please do so!

Thanks for reading!

-TacticzHazel

If you’re getting value from these deep dives, the best way to help me keep going is to subscribe. Free subscriptions are welcome and help the community grow. If you can chip in for a paid tier, it directly funds the time spent on this writing. Either way, thanks for being here.

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Disclaimer
The information I share is meant to educate and inform. It is not financial, investment, or trading advice. These are my personal views and do not promise any future results. Investing always carries risks, including the risk of losing money, and past performance does not predict future outcomes.

Before you make any investment decisions, please do your own research or talk to a licensed financial advisor. I am not responsible for any financial results that come from actions you take based on this information.

By using this content, you agree that you are fully responsible for your own investment decisions.

I want to take this opportunity to thank every one of you for supporting me on this journey. May there be many more years!

(Also very close to 5k subs) Woohoo!

To celebrate, I’m giving away a few paid subscriptions. All you have to do is like and restack this note.

If you like, restack this portfolio update as well; you will get priority in the giveaway queue.

Now the less fun part, what a brutal month for semis and AI buildout-related stocks July was. I’ve seen YTD screenshots go from 100%+ to breakeven, and some investors nearly got liquidated due to overleveraging and margin calls.

That is not how I do things around here.

I also really felt the big drawdown with my #1 stock being ASML and Nebius was #2 at the time. Nebius dropped over 50%, and ASML is also down almost 20% from the top. There’s no way around it, that hurt my portfolio’s performance.

But, I built my portfolio to weather storms like these too. My other holdings provided a cushion, so my portfolio never dropped more than 8.5% from its peak.

Overall it was still quite a swingy month, but if you invest in growth, months like these are a given. I was never worried and if anything, I was ready improve my portfolio with some new buys.

I ended the month down -4.49%. For a portfolio with over 35% exposure to semis and neoclouds, that is not bad at all. I’m very happy with the balance and diversification right now.

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I July I underperformed the S&P500, as the S&P500 was only down 0.01%

This -4.49% drawdown means that since inception (01-01-2023), my portfolio is up 147% (compared to 100% for the S&P 500), implying an ≈28.55% CAGR in the past 3.5 years.

My returns since tracking the portfolio:

• Performance 2023: 32.32%

• Performance 2024: 28.95%

• Performance 2025: 20.42%

• Performance 2026 (YTD): 19.71%

That’s a 1.5x compared to the S&P500 and almost a 2x compared to the VWRL (all-world ETF).

In the remained of this portfolio overview I will give insight into:

• All my holdings + cost basis

• My overall performance (vs. benchmarks)

• All my buys and sells this month

• Quick thoughts on the market

• Sentiment list + a short update for all my holdings and watch-list

  ---

If you want a glimpse what a normal portfolio update looks like, you can check out my portfolio update from June, which was free to read.

The majority of the portfolio updates will remained paywalled. Consider becoming a paid sub if you like what you see!

All the benefits you get as a paid sub can be found here:

Now let’s dive in.

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First, revenue growth was strong at 18% YoY, totaling at just over $90B.

Azure the primary growth driver here and still accelerating. Azure and other cloud services revenue jumped 43%. Cloud is really driving growth in this segment, attributing $59.3B this quarter. Demand is there and it’s showing.

Just a little fun fact: nobody could have imagined, and I doubt anyone uses it, but CoPilot crossed 30M paid seats. Cool.

GAAP EPS is a bit inflated, due to a $3.2B one-time gain from their Anthropic investment and OpenAI investments. Strip it out and you lose about $0.30 in EPS.

CAPEX is blowing up. Capex spend was $41B this quarter, which is a 70% increase YoY. Nothing new here, but it really hurts the FCF. Also seems that a lot this Qs capex is short-lived assets. So expect fast depreciation and margin pressure. Cash capex picture below.

The $5.2B gap is equipment acquired via finance lease rather than paid cash upfront, which shows up as lease liabilities rather than in the headline capex line most people quote

Cash paid for property and equipment also skyrocketed by 110% to $35.8B, this is likely driven by acquiring CPUs and GPUs at higher prices.

This of course hurts their FCF, which dropped 23% YoY to just under $20B. Last year this was $25.6B. It's an Improvement compared to last Q though. Net income up, but ye, that AI buildout is hurting

Gross margins keep falling. They were 69% last year and now sit just above 67% . This seems mostly driven by the drop in gross margins in the cloud segment. Management attributes this to the sales mix shifting to Azure and continued investments in AI infrastructure. Scaling AI is expensive, and it is compressing profitability on a percentage basis.

Let's for now ignore the ''More Personal computing'' segment because that really isn't doing anything.

It also seems that OpenAI's commitments to use Azure are heavily inflating Microsoft's future revenue backlog. When you include OpenAI, Microsoft's total commercial bookings only grew by 10%.

But, if you remove OpenAI from the equation and purely look at Microsoft's "regular" business customers, their bookings actually grew by 18%.

All in all, the quarter looks decent. Azure is driving the show. Capex is hurting near-term FCF as expected. So good top-line results, but it's getting more and more expensive to get there.

Alright, thats just a quick first look.

What did you guys think? Anything I missed?

Cheers,

TacticzHazel

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I already updated the paid subscribers in the Substack-chat and on Discord, but this afternoon I opened a new position.

As promised in that message I want to give a bit more reasoning as to why I opened it and what my plans are.

Below are my thoughts.

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In this article I will explain what happened and what it does to earnings (including a worst-case model at the end)

First things first, what actually happened?

Yesterday ASML’s shares plummeted on the news that China is now ‘‘mass-producing’’ (notice the quotes) DUV machines. Shares fell from almost €1600 to now below €1400, so down close to 12% in just 2 days.

The overall semiconductor sector also showed a lot of weakness following the news and is down almost 20% in just the last month and 8% since yesterday.

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What was the news that led to this sell-off?

Here are the key point of the actual report:

• China has begun manufacturing domestically developed immersion deep ultraviolet lithography machines (DUV from now on).

• Shanghai Aishengna Electronic Technology Group. A state-owned company that, per Reuters, absorbed teams from both Yuliangsheng and SMEE is the company responsible for the domestic DUV production

• The system still lags on performance and reliability and needs further testing before mass production

• Production will be limited initially, with about 5 DUV machines this year and roughly 20 in 2027

• Immersion DUV machines, which print circuit patterns onto silicon wafers, are the most advanced lithography tools available to Chinese chipmakers after restrictions cut off access to extreme ultraviolet lithography (EUV) systems

I think the two main takeaways here are simple: the very limited amount of machines that are likely to be sold in 2026 and 2027 (not mass production) and the fact that they still are behind on performance compared to ASML.

It is totally unclear if the Chinese DUV machine will deliver a chip yield that comes even close to, let alone above the machines from ASML. If the yield is not on par, the speed of adoption would be very capped in my opinion.

The threat is real though, China advancing to actual production should not be underestimated. But that does not mean the impact on ASML is huge per se. We should also not forget that ASML is already restricted from selling most of their DUV immersion machines to China.

As quoted and i wholeheartedly agree with Semianalysis here:

Therefore, the DUV tools that China is producing displace revenue ASML already lost to export controls. A tool ASML cannot legally or physically supply being built locally does not subtract from a sold-out order book

Do the machines compete with ASML?

The important distinction to make here is that no all DUV machines are alike.
With lithography there are two things that matter the most:

• There is no workaround for lithography in chip manufacturing

• Shorter wavelengths print finer lines

DUV is roughly 28nm-class where EUV does 7nm and below. That does not mean that you can’t still make 7nm chips with DUV. You do it with multi-patterning: split a dense pattern across two or four exposures and then stitch them together. Sounds good and all, but it means more masks, more process steps and longer processing time which simply leads to less capacity out of the same fab. And alignment error accumulates with every extra exposure.

A fab does not run one scanner, it runs a whole fleet and a single chip layer stack gets printed across multiple of them. The tool alignment is incredibly precise and comes down to just a few nanometers. And if the scanner does not match the required fleet performance, there is no place for it, regardless of the price or discount you get.

Now let’s do some comparisons, and I found just the right overview to do that with. posted this overview on X yesterday.

Now look at the entry point for anyone wanting to get in at 28nm….

The floor is the XT:1900i model and the NXT:1965Ci is the ceiling of what any Chinese fab can legally buy from ASML today.

The numbers are unclear but the best estimates put the Chinese machines closest to NXT:1950i-class performance at 5.5nm overlay at 190 wafers per hour. ASML started doing that in 2009, 17 years ago….

ASML’s current frontier immersion tool does 1.3nm overlay at 330 wafers per hour, with a 1.0nm machine in development. So the gap is roughly four times on overlay and nearly double on throughput.

In layman’s term this means that these ‘‘new groundbreaking mass-produced’’ Chinese tools land at the BOTTOM of a band China was already allowed to buy.

Is the moat under pressure?

A lot of people commented that the moat ASML once had is now gone. I fully disagree with this (very unnuanced) take and the reasoning is actually quite simple.

If cheaper DUV tools would break ASML’s position, then why did Nikon and Canon not break the moat before? Nikon also builds ArF immersion scanners and Canon sells i-line and KrF tools.

Neither of them put a meaningful dent into ASML position in the last 15 years. And the reason why makes perfect sense. The customers in the market are fully aligned with ASML’s machines and have done everything need to run them and incorporate them in their own facilities. Breaking years of making their production process compatible, years of training employees and building processes and systems could be thrown out of the door if they were to integrate a slightly cheaper but totally different machine.

I really doubt 5 or even 20 machines from some reason are the reason the moat is now gone. The thing is, it was never about ‘‘nobody else can build a machine like ASML’’. Nikon and Canon already did it.

The real moat is that a lithography tool only has value if it meets a spec the entire installed fleet is already matched to. Overlay, throughput, defect rate, uptime. All of these conditions have to hold under real production conditions, for years, with a service organization behind it. China is still VERY far from reaching that point.

A quick note: this newsletter is completely reader-supported. If you’re getting value out of these posts, the best way to help me keep it going is to subscribe. Free subscriptions are always welcome and help the community grow. If you’re in a position to chip in for a paid tier, it directly funds the time that goes into this writing. Either way, thanks for being here.

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The impact on EPS

Eventually the thing that matters the most, is how will this affect ASML’s share price in the long run. To find that out, we have to make some assumptions.

What we know:

• 5 machines in 2026

• 20 in 2027

What we do not know:

• Will it replace ASML’s demand?

• How many machines will they sell in 2028 and beyond

So let’s go for a bit of worst case scenario here with the following assumptions:

• All these new Chinese models replace ASML’s machines, 1 for 1

• Price of a DUV machine we will guestimate around €60M, which is close to ASML's actual average for advanced immersion tools, especially the lower end which these machines form China would target.

• Chinese machines sold in 2028 (40), in 2029 (55) and in 2030 (70). This really is a worst-case scenario.

• 60% gross margins, 15% tax and 1% buybacks

• EPS numbers are my own estimates

Cumulative that means 190 machines, leading to €11.40B revenue, €5.81B net profit and €15.61 EPS.

This is how that look in EPS impact towards 2030.

The most important thing to keep in mind here. This is really a WORST-CASE scenario. This math is only defensible if you accept the 1-1 displacement story, which I do not defend. This is merely an indication of what could happen if everything goes wrong.

In reality, ASML is sold out for 2026 and 2027 and the same will likely be the case for 2028. So near-term impact, and likely long-term impact should be a lot lower.

So the worst case scenario would justify a 7.4% decline, ASML is down 12% as we speak. The market is now pricing something close to full displacement off a report of five machines.

The MATCH Act

The thing that actually has me worried is the damn MATCH act. That would fully lock ASML out of China by law, not because of policy.

The MATCH act would do 3 things:

• It would ban immersion DUV sales to anywhere in China, not just to specific companies

• It also bans servicing and spare parts on machines ASML already sold there

• Forces the Netherlands to match within 150 days, or the US applies the rules to ASML directly

China’s revenue is declining but still meaningful. China revenue fell from 19% in Q1 to 14% in Q2, but management still guides China to around 20% of total net sales for the year. A full ban would still hurt.

ASML still services hundreds of machines sitting in these Chinese fabs, and that service revenue is recurring, high-margin and fast-growing. The MATCH Act goes after that annuity.

This still hangs over the ASML thesis and that would actually hurt them. Unfortunately timing is very unclear here. No date on when US Congress wil vote on the bill.

Conclusion

Purely looking at the numbers the sell-off is overdone. But I think this sell-off is not based on the actually numbers. I think investors are now considering ASML’s moat to be under pressure and therefore a low multiple should be applied ( I disagree).

ASML was trading around a PE of 60, and a forward PE of 30. Nothing wrong with that, as those multiple are justified for a company growing as fast ASML does and the very strong market position they have. But with yesterday’s news, forward multiples just went down.

This feels more like a rerating based on sentiment and a (possibly) declining moat than it is on the actual impact on their financials.

For me, the numbers are what matters. And as long as I don’t see China actually mass-producing machines, on par with ASML’s machines, I am not worried.

Let’s keep watching that MATCH Act closely though.

That’s it for now.

I would love to hear your thoughts on this whole DUV debacle. What do you think? Overblown reaction or not?

Until the next one!

Cheers,

TacticzHazel

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Disclaimer

The content I share is for educational and informational purposes only. It should not be considered financial, investment, or trading advice. All opinions expressed are personal views and are not guarantees of future performance. Investing involves risk, including the potential loss of capital, and past results do not indicate future returns.

Before making any investment decisions, you should conduct your own research or seek guidance from a licensed financial advisor. I am not responsible for any financial outcomes resulting from actions taken based on the information provided.

By engaging with this content, you acknowledge and agree that you are solely responsible for your own investment choices.

Right now everyone seems to be risk on, I see a lot of investors going into margin to buy the dip and to chase the next popular theme after another. Everyone and their dog is starting a full-port challenge on FinX and everyone is chasing the same set of popular stocks.

This major multi-year bull-run has led to a dangerous phenomenon: the common consensus has shifted from building a stable, well-rounded portfolio to full-porting a single set of names, all related to the AI buildout. Opposing takes out of the window under the ‘‘fuck that perma-bear’’ narrative.

My personal belief is that especially in times like these diversification is not just an option, it’s a necessity. A well-diversified portfolio can and should outperform many high risk/high reward portfolios in the long-run, especially during long stretches of risk-off sentiment.

This fantastic uptrend we’ve seen in the last 4 years seems to have led to a general memory loss about the tough market-stretches we eventually have to go through. If we’re lucky, it might take a while before we see another one. Unfortunately these stretches usually come out of the left field and hit harder and longer than we can probably imagine right now.

Diversification is one of those themes that has the investing world completely divided. To form my own opinion, I like to soak in many different and opposing views. The same goes for diversification. Before I will give you my own approach, I want to leave you with two great statements on diversification. They take completely opposite sides, yet they both seem to be right. That’s the beauty of investing and psychology, multiple roads lead to Rome.

First a quote that has been of great influence to my own strategy:

Markowitz actually won a Nobel for the math behind this quote. His basic premise was simple: when you combine assets that don't move in perfect lockstep, the volatility of the combined portfolio is lower than the average volatility of the individual pieces, without giving up expected return. You get less risk for free.

His advice: buy assets that are uncorrelated. Diversification only works when the assets don't move together. He wasn’t saying, buy a lot of different holdings. He advised owning things that behave differently from each other.

Then we have Buffett, with arguably one of his most famous quotes.

Even though it completely contradicts the philosophy of Markowitz, I actually think the quotes still work in tandem. The key word in this quote is ‘‘ignorance’’. It has a negative connotation, but the way I read it is a bit more nuanced.

The claim I want to make here, is that many investors totally overestimate their own stock picking capabilities. That doesn’t directly mean they are ignorant right away, but a certain level of Dunning-Kruger effect applies to a lot of us.

The Dunning-Kruger effect is a cognitive bias where people with limited knowledge or competence in a specific area greatly overestimate their own skills.

When you are an elite stock picker, diversification indeed is terrible. The truth is, most of us aren’t elite. Most of us aren’t even close to anything remotely professional. The bull-run these past years has led us to believe we are though.

And that’s the problem right now. We are all building our confidence on a mix of survivorship bias and an ever-forgiving stock market. When every dip gets bought like there is no tomorrow, it’s easy to be the ‘‘I buy every dip’’-investor. That works, until it doesn’t.

Let me be clear: A diversified portfolio does not usually outperform the single best-performing asset or asset-class, but it does something else: it lowers risk and improves risk-adjusted returns over time. You basically trade maximum potential gains for stability. And I’m sure you’ll agree with me, we don’t always pick the best-performing asset, or asset class. We get it wrong quite often. That’s part of the deal. Sometimes we even get it right, but the timing is off.

The perfect example of the benefit of diversification is actually the most well-known index, the S&P500. While memory stocks are down 30%/40%, SaaS stocks are in the biggest sell-off we’ve ever seen, the S&P500 is close to an all-time high.

The sole reason: it’s very well diversified. It has defensive equities, commodity plays, industrials, consumer staples. Not just AI buildout and SaaS names. That’s the power. It still compounds over time, beats most sector ETFs and does so in a fairly stable and reasonable way.

That doesn’t mean we should all full-port the S&P500 now, not at all. (maybe we actually should, but what’s the fun in that ha)

So, here is how I look at diversification. I'll break down exact position sizes and my rebalancing strategy for paid subscribers.

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This page breaks down everything you get as a paid subscriber. Think of it as your roadmap to every perk that comes with your membership.

Bookmark it so you can come back whenever you need it.

What I do

I'm Rick. My focus is on buying high-quality, wide-moat companies at a discount. I also put about 20% of my portfolio into high risk/high reward names to add upside and balance out the stable holdings.

As of today’s writing this strategy has led to a 30% CAGR since 2023 and a significant outperformance compared to the S&P500.

I look everywhere; Canada, Europe, Asia, the US. You name it. If there is value, I will go there. The goal is a solid mix of well-known names and lesser-known hidden gems.

Here is what I do in a nutshell on Substack:

• Research is my main focus: I write comprehensive deep dives and in-depth analyses on a wide range of stocks. As a paid sub you have access to my full research hub including the paywalled write-ups. You can find all the deep dives here: Deep Dives

• I also make sector deep dives like my Physical AI and Photonics guides

• I provide monthly portfolio updates and real-time updates on changes in my portfolio. I communicatie all my buys/sells via the Substack chat and paid the section in Discord.

• Whenever I have spare time, I write articles about other subjects that interest me, mostly related to companies in my portfolio and watchlist.

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What you get as a paid subscriber

Below are all the perks summarized that you have as a premium subscriber:

On top the things I mentioned above, I also offer a look behind the scenes.

The main research hub is my ‘‘Investment Library’’, which you can access via the link in this page or by clicking on the hyperlink above —>

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The Investment Library

In this Investment Library you can find:

• A live portfolio tracker, with sentiment updates, entry levels and a daily P/L. (Updated multiple times per month)

• A Sentiment list, also updated multiple times per month

• My Buys/Sells tracker

• Access to my valuation models, which consist of a bear/base/bull case and a sensitivity analysis. Valuation models are available for: ASML, Novo Nordisk, Eli Lilly, Kraken Robotics, Dlocal, STIF, TransMedics, Gabler Group and TSMC. The screenshot below is a glimpse of how they look. You can download all the models and use your own inputs to play around.

• Also included is a DCF model + explanation of how to use it.

  

• Several AI research prompts like the ‘‘Red Flag Screener and a ‘‘Research process with Gemini and NotebookLLM’’

• I also have a wide variety of watchlist, which includes a top10 list (which I update regularly), Photonics, Physical AI, Semiconductors, LatAm, Asia, Large Moats and SaaS.

My goal is to keep expanding on the functionalities of the Investment Library. I am currently working on a website to host all of the above. This will be the go-to platform to keep track of everything that I do.

I also have a discord which you can access via this link. It also includes a paid section which I prioritize. When you become a paid sub you get the direct link for the paid section in your email.

If you have suggestions or you would like to see other things as well, feel free to let me know. I’m always looking to improve on what I offer!

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If you have any questions, you can always reach out to me via tacticzhazelinvesting@gmail.com or simply send me a dm here on Substack or Discord.

Cheers,

TacticzHazel

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Disclaimer

The content I share is for educational and informational purposes only. It should not be considered financial, investment, or trading advice. All opinions expressed are personal views and are not guarantees of future performance. Investing involves risk, including the potential loss of capital, and past results do not indicate future returns.

Before making any investment decisions, you should conduct your own research or seek guidance from a licensed financial advisor. I am not responsible for any financial outcomes resulting from actions taken based on the information provided.

By engaging with this content, you acknowledge and agree that you are solely responsible for your own investment choices.

China spent the last decades building an energy infrastructure they didn’t know they needed. They invested heavily in energy infrastructure to meet economic demand, mostly for housing and industry.

That demand?

It did not arrive. At least not in full.

Lucky for them, because that excess capacity is now more welcome than ever and I believe it’s actually their most valuable asset in this AI buildout.

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Getting capacity online

While the US struggles to get capacity online, and let’s not even get started on Europe, China has been building the foundation to meet and deal with future energy problems, and the funny thing is they did so mostly by accident.

Energy demand problems and capacity restraints are not some futuristic issue to tackle. The struggle for energy capacity is happening right now, right under our noses.

Microsoft’s CEO Satya Nadella said:

Microsoft doesn’t have enough electricity to install all the AI GPUs in its inventory - ‘you may actually have a bunch of chips sitting in inventory that I can’t plug in’

And they are not the only ones with this problem. Many large companies have made similar statements. Tesla, Google and Amazon are all dealing with this issue as well.

But it seems the problem might get even worse from here. According to the IEA , Electricity consumption for datacenters is expected to more than double from here.

In a bull-scenario it could even more than triple by 2030.

Without capacity, these plans are just thoughts.

Most national energy infrastructure systems in the world are far from ready to meet that enormous demand. Demand is rising fast and it’s not just because of datacenters.

You also have climate goals that require the heavy industry to go green. They can only do so with electricity for now because fuck hydrogen.

Improving and expanding the grid is not as easy as China made it seem.

The IEA projects US data center electricity demand to grow by roughly 240 TWh between 2024 and 2030 which is a 130% jump.

China is expected to add about 175 TWh over that same period.

The big difference, China is ready to face demand increases. The US is still very busy building the infrastructure. Europe doesn’t really know what it’s doing to be honest. They are standing still

Asia already holds 56.1% of total power capacity and they are still rapidly expanding. Not only do they have the biggest share, they are also growing 2x or 3x the speed of Europe and the US.

In 2025 alone, China increased its wind and solar power capacity by more than 430 gigawatts, accounting for more than half of the additional capacity in the renewables added globally that year.

The generation and connection bottlenecks

So what is holding the US and Europe back?

It’s actually two things: the first one is the most obvious, generation. The second one is a bit more complex and less obvious, connection.

The easiest question to ask is: is there enough generation capacity to meet demand?

For now the answer is YES. But, it’s getting more and more tight.

Goldman Sachs found that American peak summer spare capacity has fallen from 26% five years ago to 19% today. If expansion continues at the current pace and it drops under 15% by 2030, the situation gets a lot more critical .

China faces a similar curve. About 175 TWh of new data center demand by 2030. The big difference is that China generates over 10,000 TWh a year today, more than double the amount of the US. They have a lot more wiggle room.

China is ready, the US is getting there. Europe is going backwards.

The second and in my opinion even more critical questions to ask; Can this capacity can actually be used? You can build all the power plants in the world, but if you don’t connect them to the grid, they’re useless.

And I can tell you for a fact, connection is the issue. In the US, over 2,060 GW of new power projects were sitting in the connection queue at the end of 2025. That's twice as much as the entire American grid can currently produce.

Wait time? 5-7 years, minimum. The picture below shows the lead times back in 2023, and it certainly hasn’t improved since then.

Most projects and business plans cannot wait that long, so a lot of them give up before they have the chance to go online at all.

Europe? It’s even worse.

Europe used to be the big datacenter hub, holding about 1/4th of total datacenter capacity in 2015. Now that’s below 15%.

Same issue here, but even longer waiting times. In a lot of European countries, like the Netherlands and Denmark, the grid operator simply stopped accepting new connections in some regions. There’s simply no space on the grid.

This is the congestions map in the Netherlands. Red is full.

Europe has an extra problem on top of it, the grid is old. About 30% of distribution networks are over 40 years old, and that hits 50% by 2030. The grid is more than ready for maintenance, and it won’t be cheap.

Also keep in mind, electricity in Europe is very expensive. Often 3x or 4x of what it costs in China or the US.

This cocktail makes Europe less and less attractive, for datacenters but also for industrial expansion or greening ambitions.

So what now?

Let’s draw some conclusions:

The common theme: energy is the bottleneck.

China is ready, they have the power and the connections. The thing they don’t have: the ability to turn this into compute efficiently and in large scale like the US, at least not for now.

The US is doing fine. They have the chips, the capital and the compute. But they are on the verge of having major grid connection issues.

Europe has nothing. They have an aging grid, high electricity prices and major capacity issues and no concrete plans to speed things up for improvement.

If you believe this AI buildout continues, and every capex number says it does, then you should also believe this major energy-hurdle can become a lot bigger in the future.

My conclusion is simple.

If the US and Europe want to catch up, they will have to invest. A lot.

That creates opportunity. And I think there are some great companies to look into that help solve the problems we talked about. Unfortunately quite a few of them run up, but I believe we still have a long way to go.

If connection is really the issue, money will flow to companies that fix the issue.

Grid equipment is the obvious one. Think along the lines of: transformers, switchgear. Here you have companies like Hitachi, Siemens Energy, Schneider, Eaton, GE Vernova. Lead times on large transformers are already 3-4 years. These companies sit in the chokepoint and will benefit from it.

Next up, the electrical contractors who do the actual work. Here we have names like Quanta Services, MYR Group, IES Holdings. Someone has to build the interconnection, and there aren’t enough of them.

Then there’s the sneaky one: utilities that are already connected. Vistra, Constellation, AEP, Dominion. They are not valuable because they generate power. They are valuable because they are already online. They have capacity.

Another solution is on-site generation. Some names to check out are Bloom Energy for on-site generation + Caterpillar and Cummins for the generators.

I hope you enjoyed, because that’s it for now!

Until the next one, Cheers,

TacticzHazel

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Disclaimer

The content I share is for educational and informational purposes only. It should not be considered financial, investment, or trading advice. All opinions expressed are personal views and are not guarantees of future performance. Investing involves risk, including the potential loss of capital, and past results do not indicate future returns.

Before making any investment decisions, you should conduct your own research or seek guidance from a licensed financial advisor. I am not responsible for any financial outcomes resulting from actions taken based on the information provided.

By engaging with this content, you acknowledge and agree that you are solely responsible for your own investment choices.

ASML flipped bullish. They dropped all the conservative mumbo jumbo and actually told everyone what will happen inthe next few years. ASML is notoriously known for leaning conservative and refraining from making bullish and overly optimistic statements about the future.

But this week they said:

We are planning to add 30% to our 2026 low NA EUV capacity of around 65 for 2027, and we are investigating to increase capacity with another 30% for 2028. Similarly, we plan to add 30% to our 2026 DUV immersion capacity of around 130 for 2027, and we are investigating to increase capacity with another 30% in 2028

Compare this to the very generic and stale tone-of-voice just two quarters ago:

Therefore, we expect 2026 to be another growth year for ASML's business, largely driven by a significant increase in EUV sales and growth in our installed base business sales

They went from just ‘‘another growth’’ year, to we ‘‘will raise our capacity with 30% in 2027 and 2028’’.

When management changes their town of voice like that, you know something has changed.

I’ll break down the most important parts of the latest earnings reports, the good and the bad, the changes in outlook and I will end with my updated valuation models (taking machines sold into consideration)

ASML is the largest position in my portfolio, currently at 17%. That might seem a bit ambitious, especially at current valuation (close to 60 PE), but I simply can’t think of any other company that is so well-positioned to play an absolute crucial role in the AI buildout and with such a large moat. I planned to hold ASML for as long as the thesis stands, and the thesis is stronger than ever.

This week’s earnings report was the confirmation everyone, including myself, was waiting for. The price front ran this blowout report already, and as of today, the stock is actually down compared to before the report.

That does not take anything away from how good these earnings were. It simply meant the market already anticipated a very strong report, and they also baked in a strong guidance increase.

ASML has now shaken off all cautious forward looking statements and raised its guidance for the coming years. Not just for 2026 but also for 2027 and 2028.

That’s a big big confirmation of the demand ASML is seeing. ASML only raises their forecasts when they are 100% sure demand is there. They are in constant talks with their customers and will only provide updates after they are sure demand is secured.

It’s not just one segment doing well, demand is picking up across the entire portfolio. A lot of that demand is AI driven, as adoption is increasing across an expanding applications space. The overall industry is going to need big innovations to address AI power consumption and cost challenges.

ASML stated:

They key part of the guidance update is that they are adding 30% EUV capacity in 2027, and another 30% in 2028. Same increases are expected for the DUV immersion section.

Knowing ASML and how they approach future looking statements, this is probably a rather conservative estimate.

Unfortunately, we did not get a 2030 guidance update, yet. An update is expected at their next Capital Markets day, but we’re gonna have to wait till June 10th 2027 for that. I expect a very big upgrade in their long-term guidance outlook.

Another important part of the guidance increase that I want to touch on is that this is not is not a capex story. Usually rampups like this are accompanied by heavy spending. But in this case, their capex spend is actually declining.

The extra capacity comes largely from move-rate improvements, upgrades, and squeezing more throughput out of the existing footprint.

Capital-light expansion is exactly what we want to see as an ASML investor.

Earnings snapshot

Below are the most important highlights of their earnings release.

• EPS: €7.59 vs €6.88 est.

• Revenue: €9.33B vs €8.87B est.

• Gross Margin: 54.0% vs 51.9% est.

𝗢𝘂𝘁𝗹𝗼𝗼𝗸 𝗤𝟯 𝟮𝟬𝟮𝟲

• Revenue: €11B-$12B vs €10.34B est.

• Gross margins between 55% and 57%

• R&D costs €1.2B and SG&A at €0.4B.

𝗢𝘂𝘁𝗹𝗼𝗼𝗸 𝟮𝟬𝟮𝟲

• Revenue: €43B-$45B vs €39.34B est.

• Gross margins between 54% and 56%

In Q2 2026 they purchased around 0.8 million shares for a total amount of around €1.1B.

There were some other highlights that didn’t really get a lot of attention.

First, I think it’s important to understand that this beat came from service, not the machines itself. Both the revenue and gross margin beat were driven by Installed Base Management sales and service and field-option upgrades. ASML even mentioned this themselves:

‘‘Driven primarily by higher than expected Installed Base Management sales’’

ASML also confirmed Intel Foundry entered high-volume manufacturing on 18A (Panther Lake) using High-NA EUV. This is the first real proof point for the High-NA machines. This is not really big for near-term revenue but it confirms that High-NA is ready for adoption.

The accounts receivables exploded, from €3B end of 2025 to €7.25B end of H1-26. Receivables more than doubling suggests heavy end-of-half shipment timing (revenue booked, cash not yet collected).

The Earnings call

I am not gonna give a full breakdown of the earnings call, but as always there were some important statements made, that often get lost.

CFO Roger Dassen made a very important statement on pricing. ASML does not raise prices often, they are usually looking to either lower them or increase the performance of the machines for better ROI.

But in the earnings call he said:

You’re also right that in the current environment, of course, the value for customers is higher than in other circumstances. I would agree with you that the current environment provides more flexibility for pricing than what you would have had in different days.

Of course, you will also appreciate, given the long order lead times that we have, that that doesn’t translate into pricing effects tomorrow. Clearly, the environment that we live in today, with the value that our products bring to customer, is substantial. Of course, gives us flexibility on pricing, more so than what you would have seen in the past. Of course, we’re executing on that as well.

This is the first time I’ve seen ASML give hints or raising prices. I actually talked about this before the earnings report. If ASML is ever going to raise prices, now is the time.

With the guidance increase, one would assume ASML is going to need to increase capacity to meet that demand.

Christophe Fouquet said that all of the capacity increases are based on ASML existing footprint. That’s quite important as it means they can more directly address the demand and not wait for extra capacity to come online.

I think all the capacity increase, either planned or investigated, we're talking about are based on our existing footprint. We have been working extremely hard, as you may have noticed, in the last six, nine months to increase our output. We'll continue to work very hard in the next few months to do the same. The number we are mentioning, we can achieve basically by optimizing the existing clean room space in the right way. This is also why we can create basically that improvement on the short term.

CFO Dassen also mentioned that the tool mix will be very different going forward.

You should also recognize that the tool mix that we're going to ship next year is a different tool mix from the tool mix that we shipped this year. When it comes to EUV in particular, the tool mix that we're going to ship next year will be Es and Fs. While this year it's a combination of Bs and Es. If you recognize the difference in output, then in essence what you're looking at is not 30% improvement of wafer capacity that we're adding, but approximately 45%.

In addition to that, as you also know, we're offering a whole slew of upgrade packages to the install base to customers, which gives them another significant uptick. It's in the combination of improving the capacity that we have internally to crank out unit numbers and the productivity of the tools, and the upgrades of the install base.

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Valuation

Now we get to the fun part, ASML’s valuation. Just make sure to keep in mind that these assumptions are only relevant until they are not. In this very dynamic market sentiment can change in a heartbeat. What is unlikely to change, is the demand for ASML machines.

As always I will present my base, bull and bear case. And I can already tell you, it looks a lot different than the modeling we did before.

Before we get to the valuation models, I first want to share the assumptions I made for units sold in the different segments. I will use that as a basis for the the valuations models. These are the 4 categories

• Low-NA EUV

• High-a EUV

• DUV immersion

• DUV dry

For all the assumptions I took the upgraded guidance into accounts, but for now I have a decent drop-off in growth projected for 2029/2030. Not because I think demand will fall off a cliff, but because until we have more clarity on that period I want to stay on the conservative side.

For the base case:

The bear case:

The bull case:

Now the valuation models.

Base Case

In this base scenario I’m going to assume that demand remains high and that ASML’s capacity expansion path is confirmed. Low-NA units ramp up fast, from 62 to 112. which is very reasonable given the 30%+ guidance remarks from management. High-NA remains a supporting factor, as for now TSMC remains on the Low-NA multipatterning for most nodes.

Revenue reaches €82bn by 2030 with growth decelerating naturally from 27% to 12%. Meaning we still take a quite conservative approach for the final 2 years.

Exit multiple of 32 is certainly not low, but if this is the execution path we model, I believe a 32x multiple is more than fair.

Take a more bullish multiple, let’s say 36x, that would give us a 13% CAGR.

Bear Case

In the bear case we are taking a few headwinds into consideration. Hyperscaler capex will flatten after the 2026 surge, EUV growth stalls and that MATCH act passes (which would ban DUV immersion sales and servicing to China).

Revenue still grows from €43B to €55B because the installed base is to large to shrink. EPS growth stalls and that warrants a lower multiple than the case. For now I think 27x is a fair exit multiple for the bear case.

The takeaway here: even in the worst case, with strong growth slowdown, you still only end up doing about -3% CAGR.

Raise the multiple slightly, to let’s say 30x, and we are close to break-even from here.

Bull Case

Last but not least, the bull case. And I really took a very bullish approach here, I am aware of it.

In the bull-case demand is even higher than the raised guidance by ASML itself, both near and long-term. The second 30% capacity expansion gets confirmed and Low-NA pushes to 128 units, but the real driver is TSMC committing High-NA for A14.

In the bull case memory stays in the current super cycle, we get no extra restrictions for China and margins expand even further. Revenue hits €96bn by 2030, EPS €108, and at a 40× multiple that compounds at 23.3%

Weighted Average CAGR

And then to bring it all together, the weight average CAGR.

We give the bull case a slightly higher weighting than the bear case, as I believe management is still underselling how big of a ramp-up will happen in the next few years.

• Bear case: 17%

• Base case: 55%

• Bull case: 28%

This gives us a weighted average CAGR of 11.78%.

I would argue this suggests that if you believe in ASML’s story, you still need them to overdeliver significantly on their current guidance. And the gravity of the thesis revolves around them doing well in 2029 and 2030 as well.

My models leave a lot of room for improvement there. If they continue growing their segments between 15%-20% annually, the upside is still there. For now, too early to tell, so we will have to do what what we’ve got now.

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Thanks for reading! What did you think of the valuation models? Do you agree, or am I too bullish or bearish?

Happy to receive any questions or feedback!

Until the next one,

TacticzHazel

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Disclaimer

The content I share is for educational and informational purposes only. It should not be considered financial, investment, or trading advice. All opinions expressed are personal views and are not guarantees of future performance. Investing involves risk, including the potential loss of capital, and past results do not indicate future returns.

Before making any investment decisions, you should conduct your own research or seek guidance from a licensed financial advisor. I am not responsible for any financial outcomes resulting from actions taken based on the information provided.

By engaging with this content, you acknowledge and agree that you are solely responsible for your own investment choices.

TransMedics is one of the most interesting companies I’ve looked at in a long long time. Not just from a business perspective, but also from a humanitarian angle. While most companies’ primary focus is on making money, I’d argue TransMedics is also in the business of saving lives. The foundation of the company revolves around optimizing a small but very important part of the healthcare system, and it’s a part that saves lives.

Now, don’t be mistaken, they are also in the business of making money. Let’s be clear about that. Luckily, they are great at that too.

Luckily for us, the market does not always agree. The share price has fallen of a cliff this year and is now down 60% from it’s recent high.

This is a setup I like: a very interesting large moated company, down 60%.

Especially since TransMedics is still growing 20%+, they are still profitable and they are still the only company that can fly a living organ across the US and manage the whole process door to door.

And while the stock price may not reflect it, they have a lot of levers and options they can pull to speed up the growth trajectory even more.

The setup looks promising from here, so it was time to dig in deep. What led to the sell-off, and how can they can get back to where they were?

Introduction

TransMedics story starts in 1998. This is when a cardiac surgeon named Waleed Hassanein got fed up with seeing good organs go to waste.

He noticed that packing organs in ice for transport did not work as he believed it should. Ice slows organ degradation down, but it does not stop the organ from being damaged. Organs are incredibly fragile, and the usable window is very short.

He also noticed that surgeons have no way to check whether the organ is still any good until they've committed to the transplant. There a huge number of donated organs never got used. He saw an opportunity to change this, and he took it.

The thing he came up with: stop freezing the organs and keep them alive instead.

His goal was to keep the organs in near-living state, by perfusing them with warm oxygenated, nutrient-rich blood. This process was later named the Organ Care System (OCS). We will cover the specifics more in-depth later.

According to TransMedics, and many others, OCS is a revolutionary technology for preserving organs used in the treatment of end-stage heart, lung, and liver failure.

The goal is to optimize organ quality, validate organ viability and increase utilization of transplant organs.

TransMedics spent roughly two decades in R&D and clinical trials before OCS hit real commercial scale.

FDA approval came in only a few years ago.

• OCS Lung was approved in 2018

• OCS Heart and OCS Liver in 2021

Not too long after that, in 2022, they launched the NOP, which stands for the National OCS Program.

Instead of just selling hospitals a machine, they did something no one did before. They decided to take over the whole supply chain. They:

• Retrieve the organ

• Manage the perfusion with their own team

• Handle all the logistics

Driving these organs around the US in a van does not work. That’s why in 2023 they bought Summit Aviation, and started building their own fleet of planes to fly the organs around the US (which is their main focus area as of today).

TransMedics IPO’d in 2019, at $16 a share, and they raised about $80M to fund the rollout.

As of today, the share trades around $70, down about 60% from it’s all time high in 2024.

Before we dive into what TransMedics does, and why I believe this is still a great long-term investment, we first have to find figure what happened to spark such a sell-off.

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1. Why TransMedics crashed, twice

When we look at the TransMedics chart above, we see two declining periods. One at the end of 2024 and another one starting at the end of February of this year. Part of that is normal growth-stock volatility, but there are some key reasons for the drawdowns that are important to highlight.

I think this is important because it sets up the foundation of how TransMedics operates but also the hurdles it has to overcome. The beauty is, once they overcome it, it’s very hard to replicate for others.

The 2024 crash

First the 2024 event. This drawdown started as a rerating story. TransMedics was priced for perfection and with any growth stock drawdowns happen. It’s part of the deal. We had multiple contraction kicking in to start things off.

But after the Q3 report, the ‘‘this is a perfect growth story’’ for TransMedics really came under pressure.

• Revenue fell sequentially, leaving everyone worried if the (hyper) growth story was still intact

• Growth decelerated hard, although the numbers are still great: 118% in Q2 down to 64% in Q3. This marked the beginning of the end of the hyper growth story some thought TransMedics was.

• Gross margins also fell down to 56%, because of lower-margin service revenue and aviation fleet maintenance costs. Decelerating revenue, accompanied with declining margins is not what people signed up for.

While management remained confident, as can be seen in the statement below, that is not how the market reacted. The stock crashed.

On top of that, they dropped more bad news just after the Q3 report on December 2nd. They announced that the CFO, Stephen Gordon was stepping down. Management never gave a real reason, but framed it as ‘‘early retirement’’. It raised many questions among investors as they were concerned about, and wondering what the real reason was. This never came to light. In my opinion they should handle this different and provide more transparency.

At the same time they also slightly lowered their Q4 guidance by $5M. Usually such a small cut wouldn’t do too much harm, but the combination with the CFO stepping down hit like a truck. This double whammy led to the first hard sell-off.

The Scorpion short report; ‘‘Walk like an Egyptian’’

The nail in the coffin was the Scorpion short report in the beginning of January of 2025. They basically accused TransMedics of a ‘‘mafia-style’’ scheme, including:

• Kickbacks to surgeons (giving cash, gifts or unearned consulting fees)

• Billing fraud

• Unreported device failures

• Off-label use of the OCS

• Steering damaged organs to certain transplant centers

They said it was the most extreme extreme healthcare fraud they'd seen.

Price target: $0.

It only took TransMedics 3 days to come with a rebuttal. They said the claims were meritless and said they were meant to "manipulate the market for financial gains."

Luckily, or unluckily, however you want to see it, the stock did not move much. Probably because it was down the gutter already.

None of the allegations ever got validated. No DOJ action. No FDA enforcement. Scorpion's FDA petition went nowhere public. During the FY2025 audit, PwC signed off on the numbers as accurate. Nothing has ever been proven.

A storm in a glass of water.

Unfortunately the report triggered securities class-action lawsuits, shareholders alleging the company misled them. That litigation is still live in 2026, and TransMedics is still carrying “legal matters” as a cost line.

After this whole ordeal, the stock recovered and reached a new all-time high, just to come crashing down again in 2026.

The 2026 crash

The first significant drop in 2026 came after the the Q4-25 earnings report. At first everything seemed good and everyone was happy, but the earnings were elevated because of one-off tax benefit. This was initially missed my almost everyone. Management actually had to release a press statement to clear that up. Guidance decelerated to ‘‘only’’ 20-25% growth and margins kept decelerating.

The second drawdown was during April/May, when there was overall market weakness and they had another disappointing earnings report. They reported EPS of just $0.30, completely missing the Wall Street estimate of $0.62 and not by a small margin.

Management blamed the squeeze on strategic investments and new facilities, and they warned that margins would stay pressured in the near term.

With all these misses and guidance cuts, it is important to look forward.

What are the expectations and plans to clear this ‘‘mess’’ up, or is it simply a strategy, where management is taking short-term pain for long-term gain.

This questions brings us to today. The stock is down about 60% from it’s highs on a streak of bad news.

So why do I still look into this company?

The thing is, there is still a lot to like. So let’s find out what TransMedics is all about and why this could actually still be a great investment from here.

2. The Management

First, let’s talk management. It is important to understand who is responsible for the overall strategy and everything that happened in the past 2 years.

2.1. Waleed Hassanein (CEO)

The big man first, Waleed Hassanein. He founded TransMedics in 1998 and has run it as President and CEO the whole way. He was trained as a surgeon, but never finished his residency. This is something critics always use to ‘debunk’’ his academic credibility.

While that may all be true, that does not make him a bad businessman. He singlehandedly led TransMedics to what it is today. He scaled the business, led the IPO, bought the aircrafts and turned the company profitable. All great achievements and nobody can take that away, no matter which way you look at it.

The Scorpion-short report framed him as short-tempered, dishonest, and alienating to the transplant community. This is hard to verify of course, but I think it’s important to take these signals into account when we hear them.

After listening to him in interviews and earnings call, he does sometimes divert to easily to ‘‘long-term growth story’’ when being confronted with bad things. I do however think it would be wise to have extra support when it comes to marketing and corporate/investor relations. He can be the visionary behind the scenes and have other people take care of the public facing endeavors.

The good thing is, no one is better aligned with the company than him. He bought $2M in stock in August 2025 and another $1M in November 2025. Although still being a net seller overall, buying in weakness does show confidence to me.

Then the rest of the directors at TransMedics.

• James R. Tobin, he is a veteran medtech operator (ex-CEO of Boston Scientific and Biosite)

• Edward M. Basile, very experienced with a regulatory/FDA background

• Thomas J. Gunderson, a long-time medtech equity analyst

• Edwin M. Kania, Jr. is one of the early venture backers

• Stephanie Lovell, long experience in healthcare/insurance

• Merilee Raines – ex-CFO of IDEXX Labs, likely audit chair

• David Weill, M.D. – transplant pulmonologist, clinical voice

The most important thing that stands out is that there have been no new directors added in the past 3 years. Kind of unique if you see what the company went through.

2.2. Skin in the game

Insiders with skin in the game is what I look for. This aligns them properly with us as shareholders.

At Transmedics insiders own about 7% of the company. That means 2,388,992 shares across all 12 directors and executive officers. But don’t be mistaken, 7% is a considerable piece to hold for insiders.

For comparison, the two big institutions each own more than all insiders combined: FMR (Fidelity) at 14.6% and BlackRock at 14.3%.

CEO Waleed Hassanein holds by far the largest stake with 1,495,782 shares, a total of 4.3%.

Sidenote: 931,454 of those are unexercised options, and 564,328 are shares he actually holds outright. Still, half a million shares owned directly by a founder is meaningful skin in the game.

The independent directors are smaller holders but these are not trivial numbers for board members either:

• Kania: 337,022

• Tobin (chair): 231,209 (175,071 held via a trust)

• Weill: 43,633

• Raines: 40,879

• Gunderson 69,348

• Basile: 35,370

• Lovell : 29,129

Most of these directors hold very few shares outright; the bulk is stock options. Basile, for example, holds just 732 actual shares; the rest is options and RSUs.

That’s not necessarily a bad thing, but options give the right to buy shares later at a fixed "strike" price. Stock goes up: buy cheap and profit. Stock goes down, option is worthless and they just don’t exercise their right to buy.

Important to note, TransMedics has stock ownership guidelines requiring each C-level executive to hold shares worth 2x base salary, and it says all C-level execs are on track to comply. There's an anti-hedging policy too.

Overall I believe this is a very capable and experienced management team, but maybe it would be refreshing to add some new faces and ideas to the board and directors. Someone from the outside with a fresh take on things could do wonders.

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3. What does Transmedics do?

For this section we are gonna dive a bit deeper into what the Organ Care System is, and how TranMmedics actually makes money.

Earlier we concluded that TransMedics wants to fix the problems that arise when using cold storage. Just to refresh you memory, these are the three things that happen in cold storage that are not great:

• Organ degradation

• Doctors have no way to make it healthier before transplant

• And they have no way to check if the organ is any good until it’s already inside the patient

3.1. Organ Care System (OCS)

To combat these problems in, TransMedics focused on doing the exact opposite. The OCS keeps the organs warm, alive and working.

It does this by pumping warm, oxygen-rich, nutrient-fed blood through the organ during transport. By doing so, the organ stays in almost the same state as if it was inside the donor’s body.

The machine that does this comes in three parts:

• The console: this is the portable box that houses and runs everything. It’s very expensive but durable and luckily also reusable. A hospital needs one per organ type.

• The perfusion set: This is a sterile, single-use kit that holds the organ and circulates the blood. You can only use it once and after that it has to be thrown away and replaced for every single new transplant.

• The solutions: These are the nutrient fluids that keep the organ fed. Also consumed each time.

Transmedics sells three versions of the OCS: Heart, Lung and Liver. Below you can see the explanation of the OCS Lung. A similar approach is used for the heart and liver.

All three have full FDA approval, for both brain-death and circulatory-death donors.

As of now it is the only FDA-approved portable, multi-organ, warm perfusion platform on the market.

3.2 How does TransMedics make money?

There are three main revenue streams for TransMedics.

3.2.1 The disposables

This is the bread and butter for Transmedics. We talked briefly about the console, which is a one time sale. But the disposables need to be rebought every time. Every transplant burns a fresh perfusion set and a fresh batch of solutions.

So you could say the console is the lock-in, after which they can collect years of cash from the high-margin consumable.

The disposables consist of the perfusion set, organ specific additives and accessory sets.

The beauty here: the revenue growth of TransMedics is directly tied to the growth of the transplant volume.

When the cases grow, so does the sale of disposables. They don’t have to resell or negotiate a new product. The installed based just keep growing and growing.

3.2.2. The consoles

Second are the consoles. As we said, this is a one-time sale. Not all hospitals buy them actually, some get them on loan or rental as they are very expensive.

This is not really where all the profit comes from. This is about getting in.

Every placed console, and it does not matter whether or loan or bought, is a future potential stream of sales.

3.2.3. The NOP (The National OCS Program)

The NOP is what brings all of it together, and what actually makes TransMedics unique.

The NOP solves a very time-consuming and hard to execute process, the transplant of the organ itself.

First you need a surgeon to get the transplans, a specialist on the machine and then you still have to manage the organ to be transferred across the country, usually within a very limited amount of time. This was incredibly difficult for hospitals to arrange by themselves and this led to a lot of organs going to waste.

TransMedics takes it all out of their hands. They have a team that retrieves the organs, their own specialist that does the perfusion and they have a whole (aviation) network to take care of the logistics.

Management has stated that most of their OCS usage now runs through this NOP.

Hospitals aren’t just buying the machine and leaving it at that. They now committing to the whole service and that’s exactly what TransMedics aims for.

That’s also where the stickiness of the TransMedics shows, once a hospital commits, they almost can’t go back. That would mean cutting the whole process and rebuilding this difficult and time-consuming endeavor from scratch.

It would be almost impossible for a hospital or a group of hospitals to build the transport network that TransMedics has. Let alone the whole aviation fleet.

When we get to the financials section we will look into how this translates to revenue and growth.

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4. The sector

First, we are gonna look into the overall state of the sector, it’s competitors (yes they do have some) and their moat.

4.1. Ice is still a problem

We concluded earlier that cold storage is far from perfect, but it’s actually still the default for most transplants worldwide.

TransMedics, and some competitors (or allies, it’s however you want to frame this) are fighting to replace this method. The problem: the cold storage method is very very cheap. It’s far from perfect, but the cheapness and how easy it is to use makes up for a good part of that.

This is the opportunity, but also the difficulty. A large chunk of the growth of TransMedics is tied to how well they can capture the current cold storage market. If you believe in the warm perfusion angle, it’s just a matter of time. But it’s certainly not smooth sailing from here.

4.2 Competitors

One would think that what TransMedics does is very unique, and it is. But they have some noteworthy competitors.

The machine itself is not unique as there are several other companies in the warm perfusion market. TransMedics is the only one that does it across heart, lung, and liver in a single portable platform, but within each niche they have competitors. On top of the once I will mention here, there are also hospitals that still do the whole process themselves.

The two most noteworthy competitors are:

OrganOx, they make a normothermic liver machine that does essentially the same thing the OCS Liver does.

XVIVO has an EVLP (ex vivo lung perfusion) that keeps the lung at body temperature and breathing. For liver they use HOPE, which is a hypothermic (cold) oxygenated perfusion. For heart and kidney they also lean on hypothermic/HOPE

The thing is, both XVIVO and OrganOX do a small part of what TransMedics does. But TransMedic’s moat goes behind just the machine.

4.3 The Moat

That’s because the scope of what TransMedics offers is not easy to replicate.

Nobody offers the complete NOP-package we talked about before. And competing in that field is gonna be very costly and time-consuming. But when you boil it all down, there’s nothing holding a different company back from doing what Transmedics does, besides money and time.

The competitor that is the biggest threat right now is OrganOx. Even more so as they in 2025 they were acquired by Terumo, which is a Japanese Medical-device giant, with very deep pockets.

OrganOx as a standalone couldn't have built a national logistics network to rival the NOP. OrganOx with Terumo's money behind it could, if it chose to.

Whether Terumo actually builds logistics or stays a device-and-disposables player is the single most important and unanswered question, especially when it comes to the Liver section of TransMedic’s revenue side.

For now, TransMedics remains in the lead, and that’s because of the full-service they provide. If OrganOx decides to move into their terriotory, they still have a first-mover advantage which is bigger than it seems.

The second part of the moat are the FDA approval’s, relationships and expertise that TransMedics has built over the last decades. FDA trials take a long time, cost a fortune and are not something that any company go shoot for. B

4.4. NRP (Normothermic regional perfusion)

To get a full picture of the sector, we also have to understand NRP. This required a bit more researched as it’s quite technical, but very important to understand if you want to invest in TransMedics.

Here is what NRP means:

NRP is a direct competitor to the perfusion method TransMedics uses.

The difference: with NRP, instead of removing an organ after circulatory death and reviving it on a machine, surgeons restart circulation inside the donor's body using a cheap ECMO pump, assess the organs in place and then recover them.

It's been the growing standard for DCD recovery in parts of Europe over the last decade or so. This method is also a lot cheaper than the OCS + NOP procurement fee.

There is however one big caveat. NRP only works for donation after circulatory death (DCD). You can't restart circulation in a brain-dead donor, because their heart is still beating and their circulation was never stopped. So a large share of transplants fall outside the NRP use case entirely.

NRP adoption in the US has been very slow, mostly because of ethical and legal friction. The main point of critism is what happens after death is declared.

NRP restarts blood flow in donors who were just pronounced dead by "permanent" loss of circulation. In the version used to recover hearts, surgeons then clamp the arteries feeding the brain so it can't reperfuse. Critics argue that clamp is what actually causes brain death, which would make it a violation of the dead donor rule: the principle that recovering organs can't be the thing that kills the donor.

Not everyone agrees. Some say the donor is already dead by circulatory criteria, and the clamp just prevents a resuscitation nobody intends and that would never be attempted anyway. That debate is still unsettled, and no US authority has ruled either way

Legal grey areas are exactly the thing hospitals want to avoid. Therefore US hospitals remain cautious for now and that’s really slowing NRP’s spread in the US.

And not only that, NRP requires a specialized on-site team and coordination that many centers don't have.

Funny enough, that is the exact gap the NOP was trying to fill.

For small and mid-sized programs without the staff to run NRP or fly its own organs, the TransMedics NOP-service is probably still the best way to go.

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4.5 Pricing

Unfortunately, we have no clear direct and exact insight into the pricing of the OCS products and NOP, TransMedics simply does not publish these numbers. But publicly available information (analysts targets and first hand remarks from surgeons) show that:

The OCS disposable set costs a hospital somewhere between $70,000 and $90,000 per case. That’s just for the kit.

On top of that you have the service with the clinical team, organ retrieval and transport costs. When you combine those costs the total cost of easily reach around $120k. Again this is an estimate.

To get a feel of this is correct we can backtest this to 2023, which was before NOP scaling happened.

TransMedics did $241.6M in revenue across 2,347 OCS cases, which equates to roughly $103,000 per case on average.

Management has said that the price per organ has remained stable in these past few years, so that confirms our earlier assumptions.

4.6 Aviation fleet + flight numbers

The current total fleet sits at 22 owned aircrafts and they are currently not adding more aircrafts. This is a deliberate choice as management wants to improve utilization rates of the current fleet before expanding more.

And it’s working, we can see that in the coverage numbers which climbed even as the fleet stayed flat:

• Q3 2025: 78% of NOP flight missions on owned aircraft (21 planes)

• Q4 2025: 79% (22 planes)

• Q1 2026: 82% (22 planes)

The thing to keep in mind here is that maintenance costs are very high. Fuel and pilots are expensive too. So while this makes TransMedics unique and gives them a moat, it’s also a drag on free cash flow that other parties do have currently.

A great X account to follow that keeps track of flight data is Jonah Lupton. He mentioned that the average amount of flights is increasing. In July it was 8% MoM and 67% YoY.

Another great place to track the flights is ’s flight tracker. Link here: TMDX Flight tracker.

Recent numbers show an upwards in the past Qs, and Q3 is starting of strong as well.

This is exactly what you want to see. In general we can make the claim that the more flights TransMedics does, the more growth they see. The only thing to take into account are the so-called dry-runs.

A dry-run is when the NOP team get’s activated, but the organ doesn’t get delivered. Usually it gets declined at recovery, the donor doesn’t proceed or can’t proceed or the patient becomes unsuitable.

The problem here: the costs have been made. But there’s no revenue to show for. Management is aware and has addressed this problem, and they are now working to reduce these dry runs through better case screening.

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5. The Risks

We already briefly flagged some of the risks earlier in this deep dive, but there are a couple other ones that are important to cover as well. I’m gonna try to keep it short, but some require a bit more explanation as this is not easy material to understand.

5.1 Medicare changes

I really had to do some digging again here as I’m European and not overly familiar with the Medicare system. But this is probably one of the most important ones to understand. Big changes in Medicare could be very harmful for TransMedics.

When a hospital does a transplant, Medicare pays them a fixed lump sum for the whole procedure. The actual costs are irrelevant, higher, lower, it doesn’t matter. The payment is the same, whatever they do. So if a hospital uses something expensive during that procedure and they have more costs that the payment by Medicare, it comes out of their own pocket.

The second payment is separate. The cost of acquiring the organ, preservation, transport, procurement, gets reimbursed on top of the lump sum, on a "reasonable cost" basis. It's billed on its own worksheet.

This is VERY important to TransMedics. Because the whole service gets billed as part of “getting the organ,” the hospital gets paid back for it separately, instead of having it eat into their flat payment. So the hospital can use TransMedics’s service (which is not cheap) and not lose money on it.

But imagine Medicare changes the rule and says: “Nope, the cost of getting the organ is now part of the flat lump sum too”. That would mean this expensive service now comes out of their own pocket.

Suddenly every dollar a hospital spends on TransMedics comes straight out of their own pocket and margin. The service that was once “free” to them (because they got reimbursed) is now a cost they just have to swallow.

And you can be damn sure that they will be a lot more critical as to if this is really the service they want to have and maybe even look for cheaper alternatives or try to do it themselves.

5.2 Terumo/OrganOx + XVIVO

We’ve already talked about the competitors before, but I want to shed a bit more light on the particular risks that comes with them.

As of now, liver is by far the biggest revenue stream (80% in Q1-26) and therefore of high importance to TransMedics. The biggest competitor in this space, OrganOX, just found a new daddy with a big bag of money. With the backing of Terumo they can expand and maybe eat into TransMedics market share for liver.

It’s still totally unclear if they will actually venture into the logistics part or force quick expansion in an other way, but this is a high potential risk. Liver is the bread and butter for TransMedics, and no other revenue stream could fill the gap if the revenue falls in that section.

XVIVO is also a name that deserves to be on this risk list. They are currently the default in Europe for liver. Their Liver Assist is the most-used liver perfusion device globally, and their XPS lung platform holds a US PMA (pre-market approval).

They now have their eyes set on the US. The DeLIVER trial will run their liver platform through a US PMA pathway. If XVIVO can pull their DeLIVER timeline forward, or if cold perfusion outcomes come in close enough to warm that hospitals start optimizing on cost. the impact on TransMedics could be quite big.

5.3 Margin Pressure

As of now, TransMedics is spending heavily. They have multiple angles they are currently exploring, but the R&D and expansion costs are high. These are the most noteworthy things TransMedics is pursuing that cost them a lot of money:

• ENHANCE Heart: A trial to get more hearts used, even from harder to use donors

• DENOVO Lung: A trial aimed at proving the lung machine works in the same way as it does for liver and heart

• OCS Kidney development: a new kidney machine

• European build-out

This eats into their margin. This is a deliberate choice by management. They are still focused on expanding and cementing their position rather than focusing on near-term profitability. But in the near-term this could really pressure margins and in turn profitability.

5.4 Aviation fleet eating capex

We concluded in the last chapter that the aviation fleet is not cheap, far from it. The majority of property and equipment costs is related to the aircrafts. It adds a lot of fixed costs (fuel, pilots and maintenance) plus you have the depreciation of the aircrafts itself.

They’ve stopped expansion in the US, so the rising costs should somewhat decelerate. But if they continue to expand in the EU, that will open up a whole new CAPEX runway. It will take many years and heavy investments before we can see it translate to meaningful revenue, let alone profit.

5.5 Financial reporting

Early in 2025 TransMedics reported ‘‘a material weakness in its internal controls over financial reporting’’. The system meant to catch accounting errors were not up to par according to their own editors. Just to be clear, this does not mean the numbers were wrong, it simply means they had a higher risk of being wrong.

Timing on this was rough, as it coincided with the short report.

The important thing, PwC still signed off on the financials. But it's an overhang. Until the controls are fixed and the litigation clears, it's a lingering question mark on an otherwise clean operating record

5.6 Regulatory and clinical risk

We have to talk about the FDA of course. Since TransMedics sells medical devices, the FDA can do a lot of harm (or good) to them. Getting FDA approval for new product or avenues takes a long time. As they are still expanding, any delay or FDA disproval can really hurt long-term growth potential.

And then there is public perception. For lung especially, some surgeons argue the machine doesn't beat cheap cold storage on patient outcomes. If that view spreads to liver or heart, adoption could stall. The DENOVO Lung trial is basically TransMedics trying to prove its case with data.

6. Opportunity

Before we go into the financials I want to highlight why I believe TransMedics is still a very interesting opportunity from here. Yes there are risks and headwinds, but that does not mean it can’t be an interesting opportunity. It’s all about the balance between growth potential and the factors that could limit it.

Besides that, there is a lot to like as well.

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6.1. First-mover advantage and MOAT

This is the most obvious one, but I want to hit this point home hard. TransMedics is the first. And that’s easy to say, because they invented this category. the NOP is truly a one-of-a-kind and very hard to replicate. No competitor comes close to the total service-package they offer.

When you also take the high-switching costs into account, this truly gives them a very hard to penetrate position and moat.

6.2. Large market to attack

When we get to the financial section we will see that growth is impressive, but honestly they still have a very large runway.

In 2025 they did 5,139 U.S. OCS cases. Its three approved organs, liver, heart, and lung accounted for roughly 20,000 U.S. transplants that year. So as of now they have only captured a fourth of the overall market.

Management is quite aggressive here, they are guiding to 10,000 U.S. NOP transplants by 2028, and they talk openly about 20,000+ over time. That would mean volume can still increase by 3x or 4x based on execution.

This is just the US. Europe is a different cookie.

6.3. The Kidney Angle

As of now TransMedics does, Liver, Heart and Lung. But the Kidney transplant section is actually the largest. The U.S. did 27,573 kidney transplants in 2025 which is more than the other three combined.

TransMedics has an OCS Kidney program in the works, with a clinical trial targeted for 2027 and FDA approval aimed at 2028.

Basic math: if they can start capturing this market, their TAM doubles. It could simply double the use cases TransMedics can address and capture.

This is still a long-shot though, but a big one. The trial is yet to commence and approval is still a long way out. The positive thing here is that the market is not yet pricing this in.

6.4. OCS 2.0 and OCS 3.0

TransMedics is also doing other trials.

OCS 2.0 is in trials right now, with ENHANCE for heart, DENOVO for lung. FDA approval is targeted around 2028.

Then we have OCS 3.0, which is the platform kidney is expected to launcs on. Management describes it as smaller, fully automated and remotely monitored, with integrated biosensors and continuous data capture.

Just to be clear, the OCE 2.0 and 3.0 terms are what the public gave the Next-gen OCS and Gen-3 trials.

6.5. Expansion into Europe

International revenue (outside of the US) is still small (3% of total revenue), but it is a very promising angle TransMedics is directly pursuing right now.

Just recently they closed a strategic investment in PAD Aviation, a Germany-based private jet operator.

The plan is simple, copy what worked in the US and bring it to Europe. They are already operating in Italy including a ground-transport tie-up with Mercedes-Benz.

The OCS device is CE-marked across the EU for all three organs already: heart, lung, and liver. That approval was given many years ago. So unlike a U.S. organ launch, TransMedics doesn't need to run fresh trials or wait on a regulator.

What is still missing the NOP part. The logistics and service section, and that’s what they are building out now. Italy is the foundation. TransMedics already runs R&D in Mirandola, and it's told investors it plans to add R&D and manufacturing there.

International growth is strong as we can see in the Financials section, but the base is still very small.

But to me, this angle is big. It’s the difference between just a US focused-company and a global one.

The thing it will all come down to is reimbursement. As soon as European health care systems start paying for the transplants, growth will pick up.

6.6. CHOPS & TROPS

We are going to get a bit technical here, but I think it is important to mention CHOPS here. CHOPS stands for Controlled Hypothermic Organ Preservation System.

This is basically TransMedics answer to the fact that not all transplants need warm perfusion. For same of the more simpler and non-time constraint transplants ice is still the best way to go. CHOPS is a controlled hypothermic preservation system, cold, but not a cooler full of ice.

As of now, TransMedics simply loses that case, as there is not need for their services.

The strategic logic is simple, TransMedics already has the relationships, contracts and agreements. Everything is in place. Adding a second, cheaper product doesn't require building any of that again. It just gives the sales team something to sell on the cases where OCS was never going to win.

It’s also a defensive angle. XVIVO and Paragonix compete in cold and hypothermic preservation. Right now, every short-ischemia case is a case TransMedics can't contest. CHOPS lets them directly compete.

Just keep in mind that this is just an extra. This will be a lower revenue, lower margin profile, until proven otherwise. Management is targeting an early Q3 2026 launch, which means we get our first real data in the back half of the year.

6.7. The Price

Not unimportant, I believe with the current drawdown TransMedics the risk/reward profile from here looks very appealing. It’s now just above $70, but it peaked at $170 in 2024.

Meanwhile the business is still guiding to 20–25% revenue growth for 2026, and it turned profitable and free-cash-flow positive along the way.

This is not some cash-burning microcap still having to proof itself. This is a profitable company with a few very promising avenues to capture.

More on valuation later.

This is the end of the free part of the Deep Dive. The next part is for paid subscribers only. In the last part I will cover

• The financials

• My valuation models, base, bear and bull case

• What I am doing. Am I buying and if so, how will I approach building a position?

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