Certain companies stand at the edge in the global markets, capitalizing on emerging trends with massive gains. From the relentless push for cutting-edge semiconductor technology to the burgeoning demand for renewable energy resources and electric vehicles, investment opportunities are constantly shifting. In the ongoing market backdrop, three companies hold a decisive moat.
The first one holds technological progress in semiconductor manufacturing. This is gearing up to capitalize on the surge of AI-related applications and high-performance computing demand. Meanwhile, the second one strategically positions itself within the energy transition. The company is focusing on producing base metals essential for renewable energy infrastructure. And finally, the third one is a leader in the lithium supply. It capitalizes on the escalating demand driven by the electric vehicle revolution.
Read more to delve into the strategies of the first one’s semiconductor dominance, the second one’s quest for sustainable resource production, and the third one’s vitality in the electrification of transportation.
TSMC (TSM)
TSMC’s (NYSE:TSM) fundamental strength is in its tech lead. This is evident from its continuous investment in advanced semiconductors, including 3-nanometer (N3) and 2-nanometer (N2) processes.
Due to the rapid demand for AI applications and high-performance computing, TSMC outperformed the foundry industry in 2023 despite the macro-adversities of U.S., China, and Taiwan issues. TSMC’s revenues fell by 8.7% in 2023. However, TSMC projects low-to-mid 20% top line growth for 2024.
Notably, this growth outlook is based on continued strong demand for its industry-leading semiconductor technologies. TSMC’s revenue participation by technology suggests advanced nodes (3-nanometer, 5-nanometer, and 7-nanometer techs) collectively accounted for a major fraction of its wafer revenue.
In Q4 2023, 3-nanometer technology contributed 15% of wafer revenue, while 5-nanometer and 7-nanometer accounted for 35% and 17%, respectively. Advanced Technologies (<7-nanometer) collectively holds 67% of wafer revenue. The increasing contribution of advanced process nodes to TSMC’s revenue suggests a growing demand for edgy semiconductor technologies.
Despite margin pressure derived from technology ramps, TSMC is profitable, with a gross margin projected to be between 52% and 54% in Q1 2024. TSMC’s ability to sustain high margins against industry challenges highlights its operational efficiency and pricing power.
Finally, to capitalize on AI-related demand, TSMC focuses on energy-efficient computing. The company’s advancements in process technology, such as the 2-nanometer, aim to edge on power and performance factors. Thus, it can be observed in the rollouts of process technologies, including N3E, N3P, and N3X, enabling it to offer differentiated solutions.
Vale (VALE)
Vale’s (NYSE:VALE) Energy Transition Metals segment, focusing on copper production, may continue to bring in growth. The efficient operation of projects such as Salobo III and increased production from other mines suggest Vale’s focus on diversifying its product portfolio and capitalizing on the growing demand for base metals. This is particularly relevant in the global transition to renewable energy and electrification.
To begin with, Salobo III, located in Brazil, represents one of Vale’s vital copper assets. The progressive ramp-up of Salobo III to 80% of its capacity within nine months reflects Vale’s operational expertise and project execution capabilities. The project’s contribution to higher monthly production levels in 2019 indicates Vale’s focus on maximizing the value of its assets and capitalizing on a favorable market state. Furthermore, the ramp-up of Salobo III has an immediate impact on Vale’s production volumes, with long-term strategic implications.
Additionally, Vale’s Energy Transition Metals segment has substantial growth in copper production, with a 10% increase in Q3 and a 22% boost during Q1–Q3. This growth trajectory is based on ramp-ups and operational improvements across key mining assets, including Salobo and Sossego. Also, the robust performance of Vale’s copper operations can be observed in the topline performance (copper sales), with approximately 5% sequential and 22% on a 9-month basis.
Beyond transition metals, the Mega Hubs initiative represents a strategic partnership that leverages Vale’s expertise in iron ore pellet production to support the low-carbon steel value chain. By collaborating with partners such as Porto do Acu and H2 Green Steel, Vale may continue to support the overall performance based on reducing emissions and promoting sustainable production. Overall, these fundamentals may continue to boost the valuation of the company.
SQM (SQM)
SQM’s (NYSE:SQM) production capabilities are its fundamental strength. The company reported record-high sales volumes of over 43K metric tons of lithium during Q3 2023. This reflects the company’s robust operational capabilities and ability to match the increasing global demand for lithium products.
Currently, lithium demand is surging, with most growth from the rise in electric vehicle (EV) adoption. This increased demand for lithium-ion batteries has caused them to become the energy-storing solution of preference. Lithium has higher energy density and longer service life, particularly in EVs. Hence, this equated to a strengthened demand for lithium itself.
Additionally, SQM has a progressive approach to capacity expansion. This can be observed in its ongoing projects aimed at increasing production capacities. In the lithium business, for instance, the company has expanded its lithium carbonate capacity in Chile to 200K metric tons per year, with further expansion to 210K metric tons expected to be completed ahead of schedule in early 2024. Therefore, this accelerated timeline reflects SQM’s focus on hitting market demand competitively.
Moreover, SQM’s expansion projects extend beyond its lithium business. They aim to include other key segments such as iodine, specialty plant nutrition, potassium, and industrial chemicals. Thus, by diversifying its production capacities across multiple business segments, SQM neutralizes the risks associated with volatility and capitalizes on growth opportunities in numerous industry verticals.
Finally, global EV sales are expected to reach millions of units in the coming years. This sales boom has a major portion of these vehicles powered by lithium-ion batteries. Overall, SQM’s lithium business stands to benefit from this trend and its valuations.
As of this writing, Yiannis Zourmpanos held a long position in TSM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
