Why Berkshire Hathaway’s Latest Big Bet Is on a Taiwanese Chip Maker

Warren Buffett’s Berkshire Hathaway Inc.

BRK.B 0.35%

is making a multimillion-dollar bet on Taiwanese chip makers.

For years, Berkshire has avoided technology stocks. In fact, in Berkshire’s 2008 annual report, Mr. Buffett says he prefers simple companies. “If there’s a lot of technology, we won’t get it,” he said.

But in the years that followed, Mr. Buffett’s view of technology changed dramatically. Berkshire made one of its biggest acquisitions in the sector in 2016, when it announced it had a stake of nearly $1 billion in Apple. Inc.

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AAPL 1.19%

The iPhone maker is now Berkshire’s largest single stock. Berkshire also had a stake of about $1 billion in Amazon.com Inc.

until the end of the third quarter. And his purchase of 60 million shares of TSMC, worth about $4.1 billion, brought the chip maker into the top 10 stocks.

“TSMC welcomes all investors who are willing to buy and hold TSMC stock,” TSMC spokeswoman Nina Kao said in an emailed comment. TSMC’s US stock rose 11% on Tuesday, its biggest one-day gain since 2020.

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Berkshire’s investment timeline is remarkable. The semiconductor industry faced a reckoning this year. After enjoying profits during the pandemic, chip companies have been cutting prices, reducing output and halting spending plans soon due to reduced demand.

TSMC was not immune to these pressures. ADRs are down 43% from their January peak.

However, many chip executives still expect long-term demand for their products. Global trade is expected to double to $1 trillion a year in the next decade, thanks to improved productivity and government subsidies in the US and Europe. .

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TSMC is also a chip supplier for Apple. Mr. Buffett described the iPhone maker as Berkshire’s second-largest company, after the insurance division.

“There is a school of thought that believes the bottom is near for chip stocks,” said Cathy Seifert, an analyst at CFRA Research. Given that “Taiwan Semi is considered by many to be the number one chip maker,” the bet made sense for Berkshire, he added.

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Berkshire’s investment is benefiting from the possibility of tensions between the United States and China.

TSMC is headquartered in Taiwan, a self-governing island with a population of over 23 million. Although TSMC has plans to expand its existing plants in Japan and build more factories in the United States, and possibly Singapore, its manufacturing capacity remains in Taiwan.

Beijing claims Taiwan as part of its territory and has threatened to take it by force if necessary. In response, the United States vowed to defend Taiwan against Chinese aggression.

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

Yoko Kubota contributed to this article.

Write to Akane Otani at [email protected]

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