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 multi-billion dollar bet on a Taiwanese chip maker.

For years, Berkshire mostly avoided technology stocks. In fact, in Berkshire’s 2008 annual report, Mr. Buffett went so far as to say that he preferred simple businesses. “If there is a lot of technology, we will not understand it,” he said.

But over the years that followed, Mr. Buffett’s views on technology changed dramatically. In 2011, Berkshire invested $10.7 billion in shares of International Business Machines. corp.

IBM 0.10%

an unlucky bet that he exited completely in 2018. Berkshire made another major provision in the sector in 2016, when it disclosed that it had a stake of almost $ 1 billion in Apple. Inc.

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AAPL 1.19%

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

from the end of the third quarter. Earlier this year, the Omaha, Neb., conglomerate revealed it had built a roughly $4 billion stake in HP. Inc.

The purchase of 60 million shares of TSMC, which Berkshire paid about $4.1 billion for, put the chip maker in its top 10 stocks.

“TSMC welcomes all investors who are inclined to buy and hold TSMC shares,” TSMC spokeswoman Nina Kao said in emailed comments. US depository receipts at TSMC rose 11% on Tuesday, marking their biggest one-day gain since 2020.

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The timing of Berkshire’s investment is remarkable. The semiconductor industry faced a reckoning this year. After enjoying a wave of profits during the pandemic, chip companies have cut costs, reduced production and reduced capital-expenditure plans in the near term due to falling demand.

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

Still, many chip executives remain optimistic about long-term demand for their products. Global sales are expected to roughly double to more than $1 trillion annually in the next decade, thanks to improvements in manufacturing capacity and subsidies for factory construction by governments in the United States and Europe.

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TSMC is also a key supplier of chips for Apple. Mr. Buffett has described the iPhone as Berkshire’s second most important business, after its insurance unit.

“There is a school of thought that believes we are close to a fund for chip stocks,” said Cathy Seifert, an analyst at CFRA Research. Given that “Taiwan Semi is considered a premier chip maker,” the bet makes sense for Berkshire, he added.

After two years of a lack of chips, we now find ourselves in a number of chips. What does a more growing supply of semiconductors mean for the industry? WSJ semiconductor reporter Asa Fitch joins host Julie Chang to explain what led to this point and how the industry is looking forward. Photo: Kobi Wolf/Bloomberg News

Berkshire’s investment is also meant to benefit from any potential cooling in tensions between the US and China.

TSMC’s headquarters is in Taiwan, the self-governing island that is home to more than 23 million residents. Although TSMC has made plans to expand existing factories in Japan and build several plants in the US, as well as potentially in Singapore, its production capacity remains concentrated in Taiwan.

Beijing has declared that Taiwan is part of its territory and has threatened to take it by force, if necessary. In response, the United States pledged to defend Taiwan against a Chinese attack.

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

Yoko Kubota contributed to this article.

Write to Akane Otani at [email protected]

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