May Update
This post is a review of the ideas we follow. We also highlight contributions from our Substack chat and conversations with investors in Singapore.
Thank you to all the very generous people who have met me online and offline over the last month. This is an interesting new direction for the newsletter, as it is starting to offer readers a sense of what investors in Asia are thinking.
The content of this post will be pinned to the main page and updated from time to time. As always, if you would like more colour, please reach out.
Memory
For the average retail investor, memory is just one of the more accessible ways to get exposure to the AI trade.
We have a bias towards NAND, but they will all do well.
Generally, in our conversations with investors, many believe multiples will move up as long term supply agreements are signed and earnings will grow as the shortage worsens.
The desperation for supply is evident from this article:
SK Hynix flooded flooded with unprecedented offers from big tech firms to secure chip supplies (RT)
The offers, unprecedented in the global memory chip industry, underscore the severity of the component's scarcity around the world, as chipmakers struggle to keep pace with surging demand amid an artificial intelligence boom.
The firm’s customers have been proposing a range of offers to the South Korean chipmaker, including investing in dedicated memory production lines, six people said.
Another proposal involved customers financing equipment purchases such as ASML’s (ASML.AS), opens new tab extreme ultraviolet lithography machines, which are used to print circuits onto silicon wafers and are worth hundreds of millions of dollars, three of the people said.
But the chipmaker, flush with cash, is cautious about taking financial commitments from customers, as such deals could hold it hostage to specific buyers and require it to supply chips at lower prices in exchange for securing longer-term and more stable revenue guarantees, two people said.
There are more exotic ways to play this, such as through SK Square. We discuss these in the chat but you can also reach out to Origo.
Legacy NAND
Macronix is a relatively differentiated idea. As a retail investor you may believe an idea has already been discovered because it has been written up on X and Substack, but I have quickly learned that this is only scratching the surface of discovery.
For example, someone told me last week that they have many analysts covering memory and have only just discovered Macronix.
This is what Macronix reported yesterday. I can offer you some resources if you would like to read in.
Source: Company documents.
ABF Substrate
This is another investor favourite at the moment and is seen as one of the most severe shortages next to memory.
Jukan occasionally pops up in the Substack chat and he offered this chart yesterday:
As a price insensitive product you would expect a 27% supply shortfall to cause a significant price increase. Coupled with LTAs being signed, you get a similar dynamic to memory here. Further, ABF supply is constrained by an upstream input called glass fiber, specifically the high-end variety known as T-glass.
Ibiden, Unimicron and AT&S are the three companies I follow. Again, they will all do well. I don’t currently have an informed opinion on which will do better.
We have some notes on what is driving this shortage, available on request.
Taiwan
These are some bullet points on Taiwanese companies flagged to me recently:
Generally, the TPU complex has done very well over the last month and Mediatek has likely been one of the best performers. This one has been raised a few times in the chat and in DMs.
E&R was flagged as an Intel supply chain idea by some very credible people. Recent report from Taiwan also suggests equipment orders from Intel.
Prosperity Dielectrics, a MLCC play, has doubled since it was first mentioned in our chat.
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