Why Berkshire Hathaway’s latest big bet is on a Taiwanese chipmaker

Berkshire Hathaway by Warren Buffett Inc.

BRK.B 0.35%

makes a multi-billion dollar bet on a Taiwanese chipmaker.

Berkshire largely avoided technology stocks for many years. In Berkshire’s 2008 annual report, Mr. Buffett went so far as to say that he prefers simple companies. “If there’s a lot of technology, we’re not going to understand it,” he said.

But in the years that followed, Mr. Buffett on technology significantly. Berkshire made one of its biggest forays into the industry in 2016, when it announced it had a nearly $1 billion stake in Apple Inc.

AAPL 1.19%

The iPhone maker is now Berkshire’s largest shareholder. Berkshire also had an approximately $1 billion stake in Amazon.com Inc.

from the end of the third quarter. And the purchase of 60 million shares of TSMC, worth about $4.1 billion, has propelled the chipmaker into its top 10 stocks.

“TSMC welcomes all investors with an inclination to buy and hold TSMC’s stock,” TSMC spokeswoman Nina Kao said in emailed comments. US TSMC certificates rose 11% on Tuesday, scoring their biggest one-day gain since 2020.

The timing of Berkshire’s investment is remarkable. The semiconductor industry has had a reckoning this year. After a surge in profits during the pandemic, chip companies have cut costs, reduced production and curbed near-term capital spending plans due to declining demand.

TSMC has not been immune to that pressure. ADRs are down 43% from their peak in January.

Still, many chip managers remain optimistic about long-term demand for their products. Global sales are expected to roughly double to more than $1 trillion a year over the next decade, thanks to improvements in manufacturing capacity and subsidies for factory construction from governments in the US and Europe.

TSMC is also a major supplier of chips to Apple. Mr. Buffett has described the iPhone maker as Berkshire’s second most important company after its insurance divisions.

“There is a school of thought that believes we are close to a bottom for chip stocks,” said Cathy Seifert, an analyst at CFRA Research. Since “Taiwan Semi is considered by many to be a premier chipmaker,” the bet makes sense for Berkshire, she added.

After two years of a chip shortage, we are now in a chip surplus. What does a growing oversupply of semiconductors mean for the industry? WSJ Semiconductors reporter Asa Fitch joins host Julie Chang in explaining what led to this point and how the industry looks ahead. Photo: Kobi Wolf/Bloomberg News

Berkshire’s investment will also benefit from a possible cooling of tensions between the US and China.

TSMC’s headquarters are located in Taiwan, the self-governing island of over 23 million people. While TSMC has plans to expand existing plants in Japan and build more plants in the US and possibly Singapore, production capacity remains concentrated in Taiwan.

Beijing has claimed that Taiwan is part of its territory and threatened to take it by force if necessary. In response, the US vowed to defend Taiwan from a Chinese attack.

After months of tension, President Biden and Chinese leader Xi Jinping attempted to stabilize relations between their two countries this week. They met Monday in Bali, Indonesia, for the first time since Biden became president.

Yoko Kubota contributed to this article.

Write to Akane Otani at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Leave a Reply

Your email address will not be published. Required fields are marked *