Books - Q4 2024

This quarter we managed to read ten books, the only 5/5 being a re-read. In Q3 2024 we read ten, with three 5/5s. In Q2 2024, we read seventeen, with two 5/5s. In Q1 2024, we read seven, including one 5/5. A total of 44 for the year - not quite one book a week.

• Growth: From Microorganisms to Megacities (3/5) Vaclav Smil wrote a 664 page book to tell us that "growth must come to an end." This book makes it clear that he is a Malthusian physicist as opposed to a cornucopian economist. He is also a communist, demanding that we should be "reducing life's inequalities to tolerable differences." Still, he has worthwhile information to convey. "The coming transition from fossil fuels to renewables will not be an exceptionally speedy affair." "Exponential growth, natural or anthropogenic, is always only a temporary phenomenon, to be terminated due to a variety of physical, environmental, economic, technical, or social constraints." "All diffusion and adoption processes must conform to that general pattern: no matter if their early trajectory shows rapid or slow progress, it is eventually followed by a substantial slowdown in growth rate as the process asymptotically approaches saturation..." "Logistic growth has its kinetic analog in the motion of a pendulum as it progresses from rest to rest with the highest velocity at the midpoint of its trajectory.""Shares of coal and oil consumption have remained surprisingly flat rather than falling steadily, largely a result of vigorous demand for steam coal and transportation fuels in Asia..." "Since 1900 the maximum battery energy densities rose from 25 Wh/kg for lead-acid units to about 300 Wh/kg for the best lithium-ion designs in 2018, a 12-fold gain that fits a logistic curve predicting about 500 Wh/kg by 2050. We must hope that new discoveries will vault us onto a new logistic trajectory as even 500 Wh/kg is not enough for battery-powered machines to displace all liquid derived from crude oil..." "The long-term trajectory of English wheat yields is the first instance of a very common growth sequence that will be pointed out many times in the coming chapters of this book dealing with technical advances. Centuries, even millennia, of no growth or marginal improvements preceded an eventual takeoff that was followed by a period of impressive gains... recent decades have seen many of these growth phenomena approaching unmistakable plateaus..." Passenger-kilometers "is one variable describing the growth of global aviation that is still following an exponential ascent." "The growth of commercial aviation could thus be summarized by the following four growth curves. Passenger capacity and the cruising speed of airplanes displace clear sigmoidal (Saturation) curves. Improvements in operating efficiency of jetliners (energy required per pkm or per seat) show linear improvements... And the growth of worldwide air traffic (in pkm) has seen exponential growth..." It is great if you can find a royalty on exponential growth, where the capital investment is being funded by others. Regarding the Malthusians: the Limits to Growth and Erlich's book (The Population Bomb) were both published right as the annual rate of world population growth was peaking, at over 2% growth per year. The growth rate has plunged and is now below 1%. Smil thinks that we are well past peak innovation: "the period between 1860 and 1913 was a unique historical phenomenon that may have no similar follow-up." (His book Creating the Twentieth Century: Technical Innovations of 1867-1914 calls that time period "the greatest watershed in human history since the emergence of settled agricultural societies.")
• The Next Two Hundred Years: A Scenario for America and the World (5/5) Reread this. (Previously.) Vaclav Smil should read some cornucopian thinkers for a different perspective. Wonder what Smil's investment portfolio looks like? Kahn thought that we were living in a transitory era: a time between world penury and world prosperity. He differentiated between primary, secondary, tertiary, and quaternary economic activity. Right now we are quaternary: a service economy. As the world becomes even richer, he predicted that postindustrial economies would emerge, where the task of producing necessities has become trivially easy, and a greater share of the population is involved in quaternary activities. The quaternary sector does not process the output of the tertiary sector. It has only limited and indirect connections to the industrial economy. Think of people making a living as Instagram influencers. Some highlights, which we may or may not have posted the first time we read. Kahn predicted a labor shortage in the developed world, where citizens no longer wished to perform jobs at the bottom of the socioeconomic ladder. (We see this happening now: "there are no anonymous servants now," as Empty America says.) He predicted that tourism would become one of the largest industries in the world, since wealth and income would grow and people have an insatiable desire to travel. He pointed out that as countries get richer, the upper middle class fares worse while the lower classes do better. "Objections to growth by the elites [arise] directly out of this class interest." Still amazed that he predicted we would get oil from shale formations. Since it takes a special set of circumstances for petroleum to migrate from the source rock to reservoir rock and be trapped, there should be vastly more oil in the source rocks than was extracted from the reservoirs over the past ~century.
  
• The Coming Boom: Economic, Political, and Social (4/5) Reread this. (Previously.) The Next Two Hundred Years is clearly better as a cornucopian work. Something that we didn't notice the first time in this one was his discussion of political coalition building and compromise (mentioning The Emerging Republican Majority): "Reagan will not support any group all the way down the line. The nomination of Sandra Day O'Connor to be the first woman on the Supreme Court was a victory for the women's movement; Mrs. O'Connor's less than definitive opposition to abortion was a great disappointment to Reagan's pro-life supporters. Anyone who voted for the president on a 'one-issue' basis is going to have to accept the trade-offs necessitated by political realities." Kahn thought that the Reagan administration should support moonshot energy abundance projects like synfuels and coal to liquids. But he realized: "such intervention goes directly against the ideology of the Reagan administration and against its current high-priority programs. This is a typical situation where a general ideological position which may well hold in most cases should not be held to a fanatical degree or to the extent that the appearance of ideological consistency is maintained at any cost." Kahn thought that the federal debt in 1982 was no big deal as it was a small percentage of GDP - now it is much larger: almost 100%. You can also express it in per capita, real (divided by CPI) terms and the federal debt is $220k per working age person which has almost tripled (in real 2020 dollars) over the past 20 years. This is what makes us think that the system is going to pick inflation (including yield curve control) as the path of least resistance.
• Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (4/5) This is by Charles Calomiris, who wrote the paper last year about "fiscal dominance" (our review) and predicted large and inflationary purchases of government debt by the Federal Reserve. The question he is trying to answer is, "Why stable banking systems are so rare?" Something that we never thought about is that the U.S. has had 15 banking crises since 1836 (if you count 2023, which was after the book was written), while Canada has not had one since it became an independent country in 1867. Calomiris calls this a "nonrandom pattern of banking crises." The countries with the most banking crises are Argentina and the Congo. Key thought: "the property-rights system that structures banking is not a passive response to some efficiency criterion but rather the product of political deals." We gradually realized in recent years that inflation is a political question, not something that can be predicted endogenously the way Prechter, Hussman, or Lacy Hunt think. (And the three of them have erroneously predicted deflation because they have the wrong model for this, not realizing the political component.) This is why we have been conducting a reading program in bailout studies. We just went through a bank failure cycle last year and we approached it using what we call a "cynical optimism" heuristic: the system would let a few institutions fail before stepping forward with a bailout. (In this case, the Bank Term Funding Program.) In contrast, those who remained (and perhaps still remain) bearish have what we would call a "naive pessimistic" view. The banks will all fail because the math says so; there will not be bailouts or the bailouts will not be efficacious. (See this tweet.) Something else about the recent bank failure cycle that surprised us was how sticky the banks' deposits were. We were concerned that depositors would flee bank deposits for higher-yielding (and safer) opportunities like Treasuries and money market, but noninterest-bearing deposits stayed above $4 trillion. Banks were able to earn an immense (>5%) spread by investing those deposits in T-bills. And total deposits are climbing again though are a bit below the all time high of $20 trillion. It must be the case that American businesses and individuals have cash working capital requirements of trillions of dollars, which is bullish for banks. (As Calomiris says, "the transactions costs and legal constraints of avoiding the deposit market are prohibitively high for some purposes.") If you need to keep bank deposits, then the government can tax you via the inflation tax. ("The autocrat can pretend to be helping the poor the whole time that he is insidiously taxing them, by providing well-advertised government welfare programs financed through the inflation tax." "Rich people tend to hold much of their wealth in assets other than cash, and those assets tend to hold their value against inflation." "Making the trick neater still, bankers and bank shareholders typically share [with the government] in the revenues from the inflation tax.") In the long run, the population will try to "evade" the inflation tax by avoiding holding cash or bank deposits, which reduces the inflation tax base. That causes the real revenue earned from the inflation tax to decline. (With this framework, you can see why inflation has a tendency to spiral out of control. If the inflation tax base shrinks, you need a higher rate of inflation to extract the same real inflation tax revenue.) History of banking: "Chartered banks and nation-states emerged as organizational forms at the same time... the two institutions coevolved because banks helped to align the incentives of the three groups crucial to the creation of a viable state: rulers, merchants, and financiers." Calmoris points out that nation states went from universal suffrage to fiat money to inflation in short order: "neither the central bank nor the government could afford to neglect the short-term political costs of high unemployment." (Recall the Durants in The Lessons of History concluded that, "history is inflationary.") He also offers a good critique of populism: "Precisely because there is nothing magical, or even necessarily competent, about decisions made through mass suffrage, liberals believe that democracy functions best in the presence of ancillary institutions that provide additional constraints on tyranny, including the tyranny that may be created by a democratic majority." They do this "by forcing legislation to pass through 'veto gates' (decision points at which legislation can be blocked by small groups)." "In the liberal conception of democracy, unless there are institutions that allow minorities to veto majorities, mass suffrage can, paradoxically, undermine the very goal of democracy - the existence of a free and just society." He points out that under populism, "debtor relief often destabilizes the banking system by undermining creditors' property rights; and in the longer run banks simply extend less credit, because they know that they are vulnerable to expropriation by debtors in coalition with politicians." Interesting concept mentioned by Calomiris: you can measure the quality of a country's property rights by looking at its proportion of contract-intensive money: the paper promises that require a high trust society. You can measure it as the proportion of M2 money supply that is solely currency (as opposed to M2's other components), or you can look at the insurance sector as a percentage of GDP. (Nobody in the Congo is buying annuities or whole life insurance.) Something else interesting: "U.S. banking crises were uniquely predictable events... Preceding WWI, every quarter in which the liabilities of failed businesses rose by more than 50 percent (seasonally adjusted) and the stock market fell by more than 8 percent, a panic happened in the following quarter." Buy gluts and sell shortages: "World War I was good for American agriculture, as worldwide food shortages pushed up prices. Those shortages, however, were short-lived. As world output grew, agricultural prices collapsed, and unit banks in rural areas of the United States began to fail." "Most of the banks that failed during the 1920s and 1930s were located in agricultural areas, and the evidence indicates that the primary contributor to bank distress [was] declines in agricultural income and land values both in rural areas and in cities." The increased agricultural yields drove down commodity prices; can we say that cornucopia caused the Great Depression? The real wheat price had already been declining for a century at the time of WWI, but that episode caused a price spike. Maybe one last theme worth mentioning: Calomiris thinks that Clinton did a lot to weaken residential mortgage underwriting and encourage risk taking, but when Bush got into office he poured gasoline on the fire. (As we know, this was based on Bush's idiotic idea that making people homeowners would make them vote Republican. The financial crisis and the Iraq/Afghanistan wars are the legacy of Bushism.)
• The Missing Billionaires: A Guide to Better Financial Decisions (3/5) Written by Victor Haghani, one of the Long Term Capital Management principals, who is now an RIA. There's a great review on The Tom File, where I also posted a comment about what, to me, is the interesting question: the missing billionaires. (The book does not actually address the puzzle of where the missing billionaires went, but I think the answer is that most rich families' wealth is dissipated by extravagant spending by the heirs and by taxation of income and estates.) Their mantra: "the optimal bet size, expressed as a fraction of wealth, is directly proportional to the gamble's expected return, and inversely proportional to its variance and to [the gambler's] personal degree of risk-aversion." The key to understanding Haghani is that he is very quantitative and in his investing career has operated at a very high level of abstraction. None of the strategies at LTCM involved investing in the Warren Buffett sense of becoming a part-owner of an attractive business. We have come to believe that the public markets are actually amazing because you can become an owner of a business that is far better than any business that you could buy or create from scratch. (Buffett said "the best business is one that is a royalty on the growth of others," and also "you’ll never buy companies as cheap as stocks sometimes get." Why didn't he focus on buying minority interests in companies with royalty-like business models for the past several decades?) We focus on the intersection of FCF yield on enterprise value and FCF margin on revenue. (That is how we found Marriott about a year ago.) Business ownership is a positive sum game: corporate profits are $3.4 trillion annually and most of that is earned by public companies. Most investors are too focused on stock prices, which are more volatile than the businesses' earnings, which are more volatile than the replacement cost of the businesses' assets. The job of the equity owners is to cushion the shock, bearing the earnings volatility and even greater mark-to-market volatility in exchange for a risk premium. (Employees are ill suited for this; they heavily discount profit sharing in favor of secure-seeming salaries.) As Lyall Taylor has pointed out, there is a risk that the current equity risk premium is actually too good to last. The real yields on government bonds and real estate have compressed and public equities (excluding the Mag 7) are one of the last places you can find a decent real yield. In response to Lyall Taylor's essay about the risk of a market meltup (e.g. to 50x earnings), Moontower pointed out that bond and real estate multiples are already very high, much higher than was historically the case. (See: "Every core-ish, newer apartment building in LA is priced in the 4.5% cap range on real numbers, in an operating environment where rents are still softening and a senior mortgage is like 6-6.5%.") 
• Natural Gas: Fuel for the 21st Century (4/5) Also by Vaclav Smil, this was written in 2015. Something interesting about natural gas is that a natural gas pipeline can transport energy at a lower cost per unit of energy and at a greater scale (i.e. 10x greater) than electrical transmission lines. He mentions that the world's largest accumulation of natural gas is a group of giant fields in the West Siberian basin. (Although the South Pars/North Dome field in the Persian Gulf that is split between Iran and Qatar is extremely large too, and possibly bigger.) Angela Merkel says that the U.S. opposed the Nord Stream pipeline because it wanted to sell its more expensive, shale-derived LNG to Europe. What if oil and gas are so abundant that what matters is not finding them, but being able to muscle other suppliers out of the way? Smil points out that the chaos in Syria and Iraq prevents anyone from building a pipeline from Qatar to the EU. Another effect of blocking Europe's access to cheap natural gas is that competitors to U.S. petrochemicals and related industries get shut down. (Remember that Exxon has its own foreign policy, a lucrative LNG business, and its former CEO was Secretary of State under Trump.) Highlights: "Finding fossil hydrocarbons became easier once we came to understand their biogenic origins... focusing on sedimentary basins where layers rich in organic matter became source rocks..." "The combustion of natural gas oxidizes carbon that has been commonly sequestered for 10^8 years." "Carbonate rocks harbor some of the world's most notable hydrocarbon reservoirs. They were deposited in shallow seas either through the precipitation of calcium and carbonate ions or the biomineralization by marine organisms..." "High porosity of reservoir rocks can be the result of initial rock formation or subsequent fracturing... effective porosity (total volume of interconnected pores) is usually much higher in sedimentary formations (primary porosity)... older and deeper reservoirs are less porous." "Obviously there is no economic incentive to invest into exploratory activities that would result in very large (>25 years) reserve to production ratios." "Significant shares of resources will always remain uneconomical (in too small concentrations, too scattered, of exceedingly poor quality), and in the case of hydrocarbons embedded in reservoir rocks, only the actual mining of those (more or less) porous formations (as is done in Alberta with oil shales) could recover virtually all fuels originally present in place." "Methane is the most important input for the synthesis of ammonia, for the production of hydrogen, and methanol and its derivatives. Ethane, the lightest of natural gas liquids, is converted into ethylene whose polymerizations yield the largest and the most valuable chain of synthetic products. Similarly, propane... is turned into propylene, the second most important compound to be polymerized after ethylene." "About half of the world's ethylene production is polymerized [producing] a variety of polyethylene, the world's most important group of plastic." "Ethylene is also the starting material for the production of PVC, the second most common plastic."  Pipelines: "Cathodic protection can keep pope's original wall thickness and strength almost indefinitely." The Henry Hub in Louisiana is where nine major interstate pipelines interconnect. The pipelines are owned by Energy Transfer, Williams, Loews Corp., Kinder Morgan, EnLink (now owned by ONEOK), TransCanada (aka TC Energy), and Enterprise Products. The Hub itself is owned by EnLink (ONEOK). And of course, the Henry Hub futures contract is traded on the NYMEX, a CME Group exchange. "TransCanada Pipeline owns the most extensive network of natural gas pipelines in North America." It occurs to us that Casey Handmer and his Terraform are still a long ways off from air capture of CO2 to liquid fuels, when you consider that we can't even economically convert methane (CH4) to liquid fuels. The shale puzzle: "Gas-bearing shales underlie large areas on all continents, but, so far, only the United States has developed this resource on a large scale." China's issues with shale: "no experience in applying and adjusting the two key constituent techniques of horizontal drilling and hydraulic fracturing and limited number of people with requisite experience... Chinese shales lie deeper than in major U.S. formations, are more scattered, have more fractures and faults, and are inadequately mapped." Other considerations are water availability and state ownership of the oil and gas industry as well as the subsurface (which leads to less entrepreneurship and risk taking). Geology: "Conventional natural gas comes mostly from younger Tertiary basins, tight gas originates mostly from Paleozoic formations with very low permeability due to prolonged compaction, cementing, and recrystallization." China's Sulige field has immense theoretical reserves, however, the gas layers are just a few meters thick and are more than 3 km deep. There's a Herman Kahn section: we could theoretically get methane from methane hydrates locked in sediments beneath the ocean floor. Smil also talks about how "the dominance of wealth creation shifted from agriculture to industrial production and then to services."
• Modern Times Revised Edition: The World from the Twenties to the Nineties (4/5) We like British historian Paul Johnson (1928-2023), having previously read his excellent, concise, opinionated biography of Napoleon (5/5, notes). His thesis: "The decline and ultimately the collapse of the religious impulse [at the beginning of the 20th century left] a huge vacuum. The history of modern times is in great part the history of how that vacuum has been filled." ''The destructive capacity of the individual, however vicious, is small; of the state, however well-intentioned, almost limitless." "At the beginning of the 1920s the belief began to circulate, for the first time at a popular level, that there were no longer any absolutes: of time and space, of good and evil, or knowledge, above all of value." One person criticized Johnson's work for "unabashed Eurocentrism that celebrates the contributions of white Protestant Christians to global progress." (Except Johnson was Catholic.) It is a mark of Johnson's good taste that he thought well of the pre-FDR American presidents (Harding, Coolidge, and Hoover) as well as the Iberian autocrats who kept their countries out of WWII: Salazar and Franco. Johnson points out that during WWI, the "warring states became steadily more totalitarian" resulting in a "qualitative and quantitative expansion of the role of the state which has never been fully reversed." Lord Curzon about India: "As long as we rule India we are the greatest power in the world. If we lose it we shall drop straight away to a third-rate power." Johnson: "though Lenin understood very well how to create a despotism, he had no practical vision of the Utopia at all. Marx provided no clue. He described the capitalist economy; he said nothing about the socialist economy... He was wholly ignorant of the process whereby wealth is created." Johnson's key belief: "There are no inevitabilities in history." Thoughts on colonialism: "A colony is lost once the level of settlement is exceeded by the growth-rate of the indigenous peoples." "The original Marxist thesis was that capitalism would collapse... The first fall-back position (Khrushchev's) was that the 'socialist bloc' would overtake the West in living standards... The second fall-back position, used from the early 1970s onwards, which was sold to the Third World and became the UN orthodoxy, was that high Western living standards, far from being the consequence of a more efficient economic system, were the immoral wages of the deliberate and systematic impoverishment of the rest of the world." "No Marxist ever seems to have held sensible views on agriculture, perhaps because neither Marx nor Lenin was really interested in it. Marxism is an essentially urban religion." And maybe the summary of this volume: "Marx described a world in which the central dynamic was economic interest. To Freud, the principal thrust was sexual. Both assumed that religion, the old impulse which moved men and masses, was a fantasy and always had been. Friedrich Nietzsche, the third of the trio [of German imaginative scholars], was also an atheist. But he saw God not as an invention but as a casualty, and his demise as in some important sense an historical event, which would have dramatic consequences. [...] Among the advanced races, the decline and ultimately the collapse of religious impulse would leave a huge vacuum. The history of modern times is in great part the history of how that vacuum had been filled. Nietzsche rightly perceived that the most likely candidate would be what he called the 'Will to Power,' which offered a far more comprehensive and in the end more plausible explanation of human behaviour than either Marx or Freud. In place of religious belief, there would be secular ideology. Those who had once filed the ranks of the totalitarian clergy would become totalitarian politicians. And, above all, the Will to Power would produce a new kind of messiah, uninhibited by any religious sanctions whatever, and with an unappeasable appetite for controlling mankind. The end of the old order, with an unguided world adrift in a relativistic universe, was a summons to such gangster-statesmen to emerge. They were not slow to make their appearance."
  
• Born with a Copper Spoon: A Global History of Copper, 1830–1980 (2/5) This is a woke history of copper. Would it surprise you to know that copper mining engineers ca. 1900 were all white men? (Mentions Herbert Hoover's mining textbook, which says that "in simple mine work," "one white man equals two to three of the colored races.") We need to take soft-subject academics who whine about mining and resource extraction and help them take a short vacation from all of the comforts of the modern world. Chapter 2 is "Futures Markets as Trustbusters: The Secrétan Copper Cartel and the London Metal Exchange, 1887–89," about a corner of the copper market. This law review article (pdf) about the Secrétan syndicate and its copper corner that is better than what is in the book. Pierre-Eugène Secrétan (1836-1899) was a late-19th Century industrialist "copperbug" who was unhappy with the cornucopian falling prices over the period 1882-1886, blamed shortsellers for the price decline, and thought that cornering the market would be a way to get the prices higher. As an economist would predict, the higher prices led to an increase in production, more copper was scrapped, and less copper was used. The corner failed. (The book says that the scrap market responded quickly to the rise in the price of copper: "shiploads of brass doors and church bells from poor towns in central Europe." Sad to melt them.) Right now we have a corner going on with Microstrategy (MSTR) and Bitcoin. The history of corners as well as economics (buy shortages and sell gluts) would predict that this one will fail too - eventually. This book should have been about the technological developments that allowed the price of copper to fall in real terms even as the rich ore bodies were exhausted. There should be a whole book about open pit copper mining, starting with Bingham Canyon - which is still producing! (Because of their large volumes, porphyry ore bodies can be economic from copper concentrations as low as 0.15% copper. The key is methods of separating the ore from waste after extraction, like froth floatation, "the single most important operation used for the recovery and upgrading of sulfide ores.") 
• Enemies of Society (3/5) Another Paul Johnson. Couple of funny quotes from the 1977 review in NYT: "When you're banging away like that you hit wrong keys occasionally." "Johnson knows what to dislike and is unflagging." Interesting question by reviewer: "if the Western edifice is indeed collapsing at every prop and stay simultaneously, then what's to prevent our suspecting that it must have been badly constructed?" Enemies of Society dovetails with Calomiris' Fragile by Design and with our cornucopian reading. One of Calomiris' major points was that in order to have prosperity you need investment and in order to have investment you need assurance against expropriation, either by an autocrat or by populism. Hence classical liberalism with limited government and economic freedom, like the U.S. constitution. (Johnson quotes Hayek, "There is probably no single factor which has contributed more to the prosperity of the West than the relative certainty of the law which has prevailed here." Also he says, "in the world created by John Locke and Blackstone's Commentaries, British society came close to proving that ideal. Virtually everything was a freehold, calculable in cash terms, from a clergyman's benefice to government office-jobs and army commissions.) At the time Johnson was writing, people were still taking the Soviet Union seriously. Even as late as 1989, Paul Samuelson was still saying that “the Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” Some quotes: "In the Netherlands, periods of intense Calvinist theocracy were marked by religious persecution, censorship, and a loss of individual liberty, and resulted in emigration, usually of the commercial middle class, to England and America. Nor is this surprising, since strict Calvinism, as anyone who actually read's Calvin's Institutes of Church Government will find, not only does not promote commerce and the profit motive but militates against them." "If the religious impulse must be accommodated, and the evil contained, the Christian approach seems that most compatible with the aims of civilization." Relevant to cornucopianism: "[Ecological alarmism] incorporates many aspects of Marxist mythology, especially the idea that capitalist society creates, then satisfies, artificial and wasteful appetites, and is ultimately self-destructive."
• Focus: The ASML way - Inside the power struggle over the most complex machine on earth (3/5) This is a profile of the Dutch company ASML Holding N.V. (ASML) which makes the photolithography machines that are used in semiconductor fabrication. (ASML originally stood for Advanced Semiconductor Materials Lithography.) ASML are currently the only company selling an extreme ultraviolet lithography machine. (Extreme ultraviolet radiation has a very short wavelength, just longer than X-rays, which allows lithography of very small semiconductor features.) ASML has a gross margin of 51% and a net income margin of 28%. Downstream from ASML is Taiwan Semiconductor Manufacturing Company Limited (TSMC) which is the largest semiconductor foundry in the world, and a customer of ASML, and then further downstream would be NVIDIA (NVDA), which is a fabless producer of GPUs. ASML is doing $30 billion of annual revenue at a 28% net margin. TSMC is doing $100 billion of annual revenue at a 43% net margin. NVDA is doing $140 billion of annual revenue at an incredible 55% net margin. (Intel had only a 15% gross margin and a net income loss in the third quarter.) ASML trades 34x earnings, TSM is 26x, and NVDA is 44x.