Taiwan Semiconductor’s 2022 Spending Plans Will Rock Your Portfolio

Shah Gilani Jan 17, 2022

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM), Asia’s most valuable firm and globally the largest contract chipmaker, has made an absurd announcement in its fourth-quarter report.

The company said it expects to increase capital spending to between $40 billion and $44 billion this year. That’s up 33.3% to 46.66% from the $30 billion it spent last year.

That’s a lot of money… But TSM wouldn’t spend unless it saw huge demand for its chips now and in the future.

The news sent shares of TSM, up close to 10% in early Thursday trading, hitting a new 12-month high after trading sideways for much of the last 10 months.

And there’s a lot more to like about TSM. Its fourth-quarter results beat analysts’ estimates on both the top and bottom lines. For the quarter, the company reported sales and earnings of $15.74 billion and $1.15 per share which represent year-over-year increases of 24% and 19%, respectively.

Those are great numbers, but I want to see shares pull back and fill the gap caused by its spending decree before targeting the stock.

If shares of TSM trade back down to $135.50 by January 28, let’s buy the TSM March 18, 2022 $135/$140 Call Spread for $2.25 or less. Plan on selling your TSM March 18, 2022 $135/$140 Call Spread position for a 100% profit, or if shares of TSM close below $124.00.

I’m also watching ARK Innovation ETF (NYSE: ARKK), the actively-managed exchange-traded fund that invests primarily in domestic and foreign equity securities of companies that are considered disruptive innovators.

It’s an ETF that holds some of the hottest names in the tech space, which was a great place to be invested in 2020.

From March 2020 to February 2021 ARKK gained as much as 378.5%, but that came off the bottom of the early COVID-19 sell-off when interest rates were low and the US Government was injecting trillions of dollars into the economy.

Fast forward to today, and the market widely expects the Fed to raise rates in 2022. That’s bad news for tech stocks like the holdings in the ARK Innovation ETF because they typically rely on borrowing money when rates are low to fund expansion and growth.

As a result, shares of the high-flying ARK Innovation ETF, have dropped 35% since November 4, 2021, and I think they’re going to drop more as the FED raises rates throughout 2022.

At this point, I like buying the ARKK May 20, 2022 $76/$75 Put Spread for $0.45 or less. Plan on selling the ARKK May 20, 2022 $76/$75 Put Spread for a 100% profit or if units of ARKK close above $92.50.



One reply on “Taiwan Semiconductor’s 2022 Spending Plans Will Rock Your Portfolio

  1. JayMoilanen says:

    Please clarify what a call spread is. I look at my brokerage accounts, (Fidelity and Etrade) but do not see a spread for either calls or puts. Etrade shows vertical spreads and diagonal spreads. Would either of these be the same?

    Also , since TSM dropped below the $135.50 price almost upon opening, and is now at $131.59 as I write this, is this a trade to not even consider, or would you adjust it down to a $130/$135 spread?

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