TSMC vs. Texas Instruments
Why we believe TSMC is the stronger long-term investment
Texas Instruments (TI) and Taiwan Semiconductor Manufacturing Company (TSMC) are two major players in the chip industry. TI focuses on analog and embedded chips, while TSMC is a pure-play foundry. While they operate in very different segments, there are some notable similarities, and some important differences.
In this article, we’ll explain why we believe TSMC is the stronger long-term investment.
Business models
Texas Instruments splits its revenue into three segments: Analog, Embedded, and Other. As you’ll see in the chart below, analog chips make up the bulk of their sales. These chips convert real-world signals (like sound, light, or temperature) into data. They're found in everything from microphones to cameras to sensors. The use cases are endless.
TI sells over 80,000 different products to more than 100,000 customers worldwide. It also owns manufacturing sites around the globe. That makes it one of the most diversified semiconductor companies in the world.
More than that, TI designs, manufactures, and tests about 60% of its chips in-house. That makes them an integrated device manufacturer and gives them control over much of their supply chain.
While TI is diversified, TSMC is a pure-play foundry with a handful of customers accounting for a significant share of its revenue. Just five of them (Apple, NVIDIA, Broadcom, AMD, and MediaTek) make up roughly 50% of total sales. That’s a highly concentrated customer base.
TSMC shows signs of a monopoly, producing over 90% of the world’s most advanced semiconductors (<7 nanometers). The smaller the transistors on a chip, the lower the number of nanometers, and the more energy efficient and powerful a chip is. No other company comes close to matching TSMC’s yield at these tiny nanometers. And the gap is only widening.
By investing tens of billions into expanding its capacity, TSMC can take on even more demand. By doing this they reinforce their dominance, and the flywheel keeps on spinning.
Even more concentrated than TSMC’s customer base is the location of its fabs (chip production facilities). TSMC operates roughly 20 fabs in Taiwan. While it’s expanding production to countries like Japan, the U.S., and Germany, about 90% of its chips are still made on this island, just 93 miles (150 kilometers) from China’s east coast.
A market comparison
Every business is tied to the market it plays in. It is true that semiconductors are a growth story. Robotics, AI, electrification... all pushing demand higher. But still, both TSMC and Texas Instruments deal with regular slowdowns. Every few years, customers build up too much inventory and demand cools off. It’s part of the cycle.
But while both companies deal with cyclicality, they play in very different corners of the chip world.
TSMC operates in a part of the market that has clear winner-takes-all dynamics. It’s a high-stakes game where scale, precision, and investments give you a serious edge. TI, on the other hand, competes in a far more fragmented market.
To put numbers on it: TSMC holds around 65% of the global foundry market. TI holds just 20% of their market. And that actually makes them the market leader in analog and embedded semiconductors. That alone tells you how splintered the space is.
Why the big difference?
It comes down to what customers actually need. TSMC’s clients (Apple, NVIDIA, Amazon) are chasing performance. They want faster, more energy-efficient chips built on the smallest nodes possible.
Many of TI’s customers are totally fine using a chip designed a couple years ago. These chips aren’t the most complex, and there are often multiple suppliers offering nearly the same product. That naturally leads to more competition and lowers the market share of TI.
While fragmented markets can consolidate and there’s opportunity to grow, we expect this to happen at a slow pace in the analog and embedded markets. In our view, investing in a monopoly in a fast-growing market like TSMC would make more sense.
Capital allocation
Another big difference is how each company thinks about capital.
As you might know, Asian companies are often more defensive when it comes to returning cash to shareholders. TSMC does payout a dividend to its shareholders (about 25% of its operating cash flow) but doesn’t do share buybacks. Texas Instruments on the other hand reduced its share count by about 50% since 2002.
While both companies allocate massively in their businesses (capex, R&D and inventories), TI is a lot more willing to reward their shareholders by allocating capital to them.
One thing to watch: the spike in capital investments of TI in the last few years. According to TI’s CEO Haviv Ilan, TI is ready for the next upswing in the semi-market. Capex is expected to decrease in 2026. If you are interested in investing in TI, you must have confidence that the utilzation of the newly added capacity is high. Otherwise, the added capacity could be value destructive.
In our view, a lot of this ties back to the markets both companies are in and the fact that TSMC’s moat keep widening.
Conclusion
Over the past 10 years, TI’s share price rose about 160% (10% CAGR). Meanwhile, TSMC is up 560% (20% CAGR) over the same period. This is no coincidence.
We believe it comes down to two things:
The markets each company operates in.
TSMC’s almost impenetrable moat
What are your thoughts about both companies? Please share your opinion in the comments.
Happy investing,
The Dutch Investors