Taipei, Taiwan – The strategy of buying Taiwan Semiconductor Manufacturing Co.’s shares in Taipei while shorting its US listing is proving to be increasingly challenging. The allure of artificial intelligence in the United States has driven TSMC’s American depositary receipts to their highest premium over the Taiwan stock since 2009, according to Bloomberg data. The ADRs are currently trading at a premium of around 21%, significantly higher than the five-year average of less than 8%. This premium peaked at 30% during the Lunar New Year in February, coinciding with the closure of the Taiwanese stock market.
Investors who anticipated a return to the fair value level are now facing the possibility of an even higher premium, leading to potential losses. TSMC’s advanced technology and attractive valuation have made it a popular choice among global investors interested in AI. While the ADRs have surged by 66% this year, outperforming Taipei shares with a 55% increase, both are trading below their 2021 valuation peaks.
The accessibility of the ADRs to foreign investors has driven their outperformance, as they are included in popular indices like the Philadelphia Stock Exchange Semiconductor Index and ETFs like VanEck Semiconductor ETF and iShares Semiconductor ETF. This has led to a supply/demand imbalance, favoring the US-listed securities over the Taiwan stock. Moreover, the fungibility of TSMC’s ADRs and the regulatory hurdles involved in converting Taiwan shares into their US equivalent have further contributed to the premium.
Despite concerns over the premium, the AI sector remains robust, with companies like Nvidia Corp. commanding a market value exceeding $3 trillion. The semiconductor industry is also thriving, with a gauge tracking semiconductor shares hitting a record high. The average premium of TSMC’s ADRs over the local stock has reached nearly 17% this quarter, indicating sustained investor interest in the US-listed securities.
According to industry experts, the AI boom is far from over, with potential for further growth and market expansion. While the premium on TSMC’s ADRs may continue to fluctuate, investors remain optimistic about the long-term prospects of the AI sector and the semiconductor industry as a whole.