According to reports, Warren Buffett’s Berkshire Hathaway Inc has bought over $4.1 billion worth of stock from Taiwan Semiconductor Manufacturing Company (TSMC). This investment could be one of the few significant steps taken in the technology industry.
It is observed that Berkshire Hathaway frequently invests in various industries across the globe, be it insurance company Geico or restaurant chain Dairy Queen.
This semiconductor company lives with its own government on an island that is home to more than 23 million people, Taiwan. In the coming years, TSMC plans to expand its factories in Japan as well.
Taiwan Semiconductor Manufacturing Co. has been in the news since the start of the Covid19 pandemic, raising concerns about how the company will affect chip supplies worldwide. And it makes sense because TSMC is the world’s largest chip maker, with a market share of over 53%.
Warren Buffett is considered one of the most successful investors of all time. Thus, investors following Buffett’s career know that Berkshire Hathaway tends to buy businesses with a solid competitive edge. It also has good value and good potential for long-term growth.
Eventually, this investment report boosted investors’ confidence in the world’s largest contract chipmaker. Hence, TSMC’s stock had jumped 7.9% in Taiwan by Tuesday evening. TSMC’s stock fell to a two-year low a month ago as worldwide chip demand slumped.
According to a 2021 report, more than 90% of the world’s advanced semiconductors are manufactured in Taiwan. Taiwan Semiconductor seems to have all three of these things. Being the largest and most potent semiconductor foundry globally gives it a competitive edge.
Some estimates say its share of semiconductors production in the first quarter of 2022 will be a staggering 53.6%. TSM has surpassed Intel in the most advanced chip nodes in output, giving it an even more significant market share.
When PC, the industry crashed this summer. China began making threats against the island after House Speaker Nancy Pelosi visited Taiwan in August. China can buy only as many high-performance semiconductors from the US as it could before.
Due to these headwinds, TSM’s stock dropped almost to where it is now in Q3. It declined further in early October. The share price has fallen 48% from its high point of the year and 51% from its all-time high. This means Buffett bought the shares at a price equal to or higher than their current value. TSM has a current yield of 2.5% based on a price-to-earnings ratio of 15.5, and it’s expected to earn 12.5% over the next year.
Buffett may have heard about TSM from Apple, where they have connections. Some websites said in October that Apple had reluctantly agreed to TSM’s latest price hike.
Apple gets the CPU for the Bionic iPhone and the M series laptop chips from TSM. Buffett must have understood TSM’s market position and pricing power because of Apple.
Warren Buffett is not known for taking small bets on new technologies. But Mr. Buffett’s view of technology changed drastically over the next few years. Berkshire invested $10.7 billion in International Business Machines Corp shares in 2011. It was a bad bet that caused Berkshire to get bailed entirely out in 2018.
In 2016, Berkshire took another significant step in this area when it said it had nearly $1 billion in Apple Inc. is owned by. The iPhone maker is now Berkshire’s largest stock holding. At the end of the third quarter, Berkshire-owned Amazon.com Inc. had approximately $1 billion in assets. This year, the Omaha, Nebraska, company said it had invested nearly $4 billion in computer and printer company HP ink
The company strongly prefers large, well-known businesses that it believes have an advantage in their areas.