The Algorithm and the Foundry

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It is a commonplace observation that wealth follows perceived opportunity. Mr. Philippe Laffont, a manager of substantial funds, appears to be acting on this principle. His firm, Coatue Management, has allocated a considerable portion – exceeding twenty percent – of its $39 billion portfolio to three companies. These are not, it should be noted, the companies designing the fashionable “artificial intelligences” currently dominating the headlines. Rather, they are the companies providing the essential, and often overlooked, infrastructure upon which these digital fantasies are built.

The prevailing enthusiasm for chip manufacturers like Nvidia and Broadcom is understandable, given their visibility. But to focus solely on those who assemble the finished product is to miss the true locus of power. Mr. Laffont, it seems, understands this. He has placed his bets further down the chain, on those who provide the tools and the means of production. This is a more considered, and perhaps more realistic, approach. It acknowledges that the true beneficiaries of any technological revolution are rarely those who claim the glory, but those who control the underlying machinery.

1. Taiwan Semiconductor Manufacturing (8.5% of assets)

Taiwan Semiconductor Manufacturing (TSMC) is, quite simply, the largest contract chip manufacturer in the world. Its dominance is not a matter of luck, but of scale and expertise. It currently commands seventy-two percent of all foundry spending – a figure that speaks volumes about its central role in the global technology supply chain. The advanced processors designed by Nvidia and Broadcom are, in almost all cases, fabricated by TSMC. This is not a partnership of equals, but a relationship of dependency.

TSMC projects revenue growth of thirty percent for the current year, a figure supported by price increases and a relentless expansion of manufacturing capacity. This is not merely a matter of increasing output; it is a strategic assertion of control. By investing heavily in advanced manufacturing processes, TSMC is creating a barrier to entry for potential competitors. The company anticipates a compound annual revenue growth rate of twenty-five percent between 2025 and 2029. Such projections, while ambitious, appear grounded in reality, given the insatiable demand for advanced semiconductors.

The stock currently trades at twenty-seven times forward earnings. This appears, on the surface, a reasonable valuation, particularly given the company’s projected growth rate. However, it is crucial to remember that valuations are merely estimates, based on assumptions about the future. The future, as any seasoned observer knows, is rarely predictable.

2. Lam Research (6.1% of assets)

Lam Research manufactures the equipment used to fabricate semiconductors. This is not a glamorous business, but it is an essential one. Without the tools provided by Lam Research, the chips produced by TSMC would not exist. The company’s equipment is particularly suited to the production of logic and memory chips – both of which are currently in high demand.

Lam Research is poised to benefit from the massive increase in capital expenditures by chip manufacturers. Micron and SK Hynix, two of the world’s largest memory chip producers, are planning to spend billions of dollars on new equipment. This will, inevitably, translate into increased revenue for Lam Research. The company anticipates a twenty-three percent increase in sales for the current year, driven by growth in its advanced packaging business.

The semiconductor industry is notoriously cyclical. However, Lam Research’s services segment provides a degree of stability. This segment generated $2 billion in revenue last quarter, up from $1.75 billion the year before. The stock currently trades at a forward P/E ratio of 46. This is a high valuation, and suggests that the market has already priced in much of the company’s future growth. It would not be surprising to see a correction in the near future.

3. Applied Materials (5.8% of assets)

Applied Materials, like Lam Research, manufactures equipment used to fabricate semiconductors. It is the largest company in this sector, generating more revenue than any of its competitors. This allows it to invest more in research and development, and bring new products to market faster. It is a virtuous cycle, but one that requires constant innovation.

The company spent $3.6 billion on research and development last year, compared to $2.3 billion for Lam Research. This is a significant difference, and suggests that Applied Materials is more committed to long-term innovation. The company anticipates twenty percent revenue growth for 2026, a figure consistent with the projections of Lam Research. The stock trades at 34 times forward earnings, a valuation that appears reasonable given its growth prospects.

It is worth noting that all three of these companies are susceptible to the cyclical forces that govern the semiconductor industry. Demand for semiconductors can fluctuate wildly, and a sudden downturn could have a significant impact on their earnings. However, Mr. Laffont appears to be taking a long-term view. He is betting on the continued growth of the digital economy, and the continued demand for semiconductors. It is a calculated risk, but one that appears, at least on the surface, to be well-founded.

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2026-03-01 15:52