The brief to portfolio managers at the latest INN8 Invest summit was simple: pick four global companies that will change the world. Simple, but not exactly obvious considering there are an estimated 54,000 companies listed on stock exchanges worldwide. And yet, when it came to it, the four firms are household names: Taiwan Semiconductor Manufacturing Co (TSMC), Novo Nordisk, and two that just happen to have South African access points — Glencore and Tencent. Here’s why they made the cut.
TSMC
If you own an iPhone or a Samsung Galaxy S; if you watch Netflix or use Google Maps, or have used any sort of AI in the past year, then you’ve made contact with TSMC, one of the world’s most important chipmakers.
With about 12,500 products that it sells to more than 600 clients, TSMC can “put more than a billion small transistors into an area smaller than your fingernail, and they can do that over and over again at a scale that’s unimaginable”, said Granate’s investment manager Henno Vermaak, who picked the stock.
So successful has TSMC been that it commands more than 90% of the market share of all leading-edge semiconductor makers. That’s evident in its share price: up almost 92% over the past year. Yet despite its existing scale, Vermaak believes the firm still has “incredible” growth potential — partly because it is so far ahead of the competition.
“One question we think about is, what do you need to compete? First: a lot of money. Building a factory costs tens of billions of dollars, and even if you have all the money to do this, it’s not something you read in a textbook. You do it by learning. And for TSMC, constantly iterating and doing the same thing over and over has led to a process where more than 1,000 steps can be done without such loss that the chips aren’t useful.”
Even if you had all the money and skills in the world it would still take about three years to get up to speed, by which time, argues Vermaak, TSMC is already onto the next iteration.
“You’re behind before you’ve even started.”
TSMC’s expanding geographic presence is also a plus, though “we can’t wish the risk away” of a Taiwan-China clash, Vermaak told the INN8 audience.
Ultimately, he said, “this is the way to play [AI] because it doesn’t matter who wins or which product rises to the top — it’ll be manufactured in the labs of TSMC”.
Novo Nordisk
“Companies that can change the world are those that can solve large, intractable problems that have been unsolvable for a long time. And one such problem is the rise of obesity, to the point where one in eight people globally are considered medically obese,” said Abax portfolio manager Matthew de Wet, citing obesity’s threat to life expectancy and its annual cost for health-care systems worldwide ($2.5-trillion).
Enter Novo Nordisk, the Danish company founded in 1923 that commercialised the production of insulin. In 2014, Novo released the first version of what has become a global weight-loss phenomenon: GLP-1 (glucagon-like peptide-1).
Then came “the pen”: injectables Wegovy and Ozempic in 2021, with the first oral GLP-1 tablet introduced this year.
Such was the frenzy created by the drugs that Novo’s market cap, $160bn in 2020 (exactly the same as chief rival, Eli Lilly, incidentally), ballooned to $660bn by 2024. For a time, its market cap was bigger than Denmark’s entire GDP.
But then it came unstuck, mainly in the US. “They treated the US as a pharmaceutical market, where Lilly was clever and treated the drug as a consumer product and marketed it as such,” De Wet said. Novo’s production couldn’t keep up and shortages of its product opened the gap to counterfeit contenders. Novo’s share price collapsed, while Eli Lilly’s continued to surge.
Such has been the pullback that, according to De Wet, reversing out the value of Novo’s GLP-1 franchise means Eli Lilly is worth 23.5 times Novo’s value, despite the Danish firm having a 40% market share of injectables and 90% of oral GLP-1s.
“So, the investment case is a free option; if they don’t return to their former success, you’re buying an existing business on a pretty low multiple, but if they do manage to get back on track, you could see the share double or even triple over the next number of years.”
Glencore
For Greg Hopkins, deputy chief investment officer at PSG Asset Management, “global portfolios don’t own enough commodities”.
“The rest of the world [apart from mining companies] is in a global capex boom,” he pointed out. “Some estimates are that there’s up to $14-trillion of incremental capex that is going to be spent in the next five years”, from AI to the energy grid and global defence. Needless to say, this is all commodity intensive.
At the same time, Hopkins argues that there’s a “war on commodity infrastructure”, from the Middle East conflict to the protracted war between Russia and Ukraine — Kyiv’s drones have taken out about 40% of Russian oil refining capacity in the past few months, as well as a big chunk of Russia’s grain export capacity in the Black Sea.
Throw in Europe’s drought, which has affected crop yields as well as logistics thanks to low river levels, and Hopkins says the world should be bracing for an inflation surge.
Enter Glencore, or should we say “the cavalry”. The commodities miner and trader “has the largest marketing and logistics business in the world. We think they’re going to play a big role in trying to alleviate these global chokepoints,” Hopkins said.
Then there’s the miner’s copper business — fundamental to global capex spend on infrastructure — and its thermal coal division. “Europe is sitting on its lowest gas stockpiles in a very long time and they are going to need coal,” he argued.
“Glencore has outperformed other stocks on this panel in the past 12 months. And we think it’s got a very good chance of continuing to do that. It plays a role in diversification of portfolios in terms of protecting portfolios against rising inflation. Cometh the hour, cometh the company. This is Glencore’s time.”
Tencent
Undoubtedly the weakest performing stock of the four is Tencent, which has lost more than 35% of its value over the past year.
But, believes Nicole Agar from Truffle Asset Management, the Chinese company “has an AI strategy that other companies are perhaps missing”.
For starters, she argued, the world is in a “sorting-out period” during which hyperscalers such as Google, Amazon and Microsoft are throwing billions at data centres, while large language model owners such as OpenAI and Anthropic jostle for dominance. It’s not remotely clear yet who will win.
Tencent, on the other hand, started out with messaging service WeChat, which has grown to 1.4-billion users. This, said Agar, “gives them a huge distribution advantage to lead in social networks”.
Tencent plans to embed AI agents in its existing offerings, which “creates an economic flywheel of more activity, so you should have increased use of payments and advertising, and increased monetisation of an ecosystem that already exists”, Agar said.
But “being Tencent, they’re not only different in the way they approach AI, but also in terms of how they finance it”.
Microsoft and Amazon are looking to spend about $1-trillion on capex in the next year; “that’s 42% of their sales. Tencent, on the other hand, is looking to spend only 21% of sales, and return on investment is very much top of their mind. And if the ROI isn’t great after two years, they will on-sell that compute and move away,” Agar said.
“The business is highly cash-generative and sits in a net cash position, and that core business is growing its operating profit at between 15% and 20% a year.”
Tencent also owns an investment portfolio worth about $130bn — or more than 20% of its market cap, which it can access for capex spend.
“So, their financing strategy is conservative and disciplined. They are not betting the farm or endangering their balance sheet,” Agar said. “What you’re buying is a core business still powering ahead on steroids, with an option on AI and a management team that I would bet to get it right.”
