The hidden risk even Apple isn’t immune to

Palantir and TSMC

Hey Reader,

We know you have heard about Apple but have you heard about Palantir and TSMC?

First things first. What is Palantir? It is an American company that makes software. Palantir is special because various departments within the US government use its software for complex data processing. They also use Palantir’s software for counterterrorism activities. Now, that is complex for sure.

It is remarkable that Palantir makes about 55% of its revenues from government contracts. As per its latest filing in October 2024, Palantir has 629 customers. However, multiple departments under a single government agency or ministry are each considered individual customers. So, the actual number of customers might be much lower.

Why is it of concern?

Because it is exhibiting concentration risk.

For example, the Taiwan Semiconductor Manufacturing Company. Despite being the largest chip manufacturer in the world, TSMC’s biggest customer contributes as much as 25% of its total revenues. This is as per its 2023 annual report. While TSMC mentions the 25% contribution from its largest customer, it does not name the customer. Most people believe it is Apple.

So, if Apple were to start sourcing its chips from somewhere else, or rather if Apple were to start manufacturing its own chips, TSMC’s performance would take a big hit.

More than half of TSMC’s manufacturing is concentrated in Taiwan, which is itself a disputed territory. If tensions between Taiwan and China were to escalate, TSMC’s operations could be impacted. To put it simply, concentration risk is when a business overly depends on one external party or factor.

Let’s look at some examples.

A large real estate company has all its projects in just one city. A natural calamity, an economic shock, or political instability in that city could throw off its real estate demand and, hence, the company's prospects.

A coffee brand sourcing all its coffee from just one region also faces concentration risk. One year of bad crop could send the business off-track.

Oh, and do you remember how McDonald’s shuttered all its stores in North and East India back in 2017? It was because their relationship with one franchise turned sour, and this franchise ran 160+ McDonald’s restaurants in the region.

And in the above context, Apple also faces a major concentration risk. We have explained it in detail in our podcast that will only take 5 minutes of your day:) So, do give it a listen.

What is concentration risk?

When a company's revenues are dependent on just a few customers, it is said to have concentration risk. So, let’s say you have a business, and 10% of your revenues come from just one customer. What if this customer stops working with you? It could be for whatever reason - maybe that customer is now buying from your competitor, or maybe it has run out of business. But if that customer stops buying from you, your revenues will suddenly take a 10% hit. That is concentration risk.

Concentration risk also weakens your bargaining power. If your supplier knows that you are dependent exclusively on just them, they might command a higher price for the materials they sell to you.

If your customer knows that they contribute a considerable part of your revenues, they might start dictating the pricing terms.

Concentration risk always exists in one form or another. This is why businesses want to have more customers, expand to other countries, and have multiple suppliers for every input or raw material.

The Trader Who Took It Personally

There once was a young trader named X. He had read the charts, memorized the strategies, and even opened his first real account. But the moment things went south, a wrong trade, a small loss it felt like the world was pointing fingers at him.

Each red number on the screen wasn’t just a loss; it was an insult. It stung. He’d stare at the screen, paralyzed, wondering if he just wasn’t cut out for trading

As he cruised down the highway, X asked himself, do I get emotional when I miss a turn while driving? Only to realise that he just corrects the course and moves on.

Then he thought, that’s exactly what he should do with trading. A missed turn is just feedback. It’s not a failure, it's information.

That day, something shifted. He stopped seeing losses as punishment. Instead, he saw them as tiny nudges and signs pointing toward improvement.

Slowly, trade by trade, mistake by mistake, he got better. Not because he avoided failure, but because he welcomed the lessons hidden in each one.

The secret? He stopped taking it personally. But, there is more to this mindset - Check out our article on “Loss is feedback, not failure”

Why does the stock market go up… even when the economy is down?

Recession? Layoffs? Inflation? And yet… markets are rising. Feels like a scam, right?

Here’s the truth - The stock market is not the economy. It’s a forward-looking machine. Investors bet on what will happen, not what's happening now. So while the economy struggles, markets may already be pricing in a recovery 6–12 months ahead.

Lesson: Don’t confuse headlines with market direction. The market doesn’t care about today. It cares about tomorrow. Stay in it for the long haul :)

This newsletter has been put together by Apurva Gururaj and Vineet Rajani. If you have any feedback for us or something you’d like for us to cover in the upcoming newsletters, do let us know. Mail us at varsity@zerodha.com