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 multibillion-dollar bet on a Taiwanese chip maker.

For years, Berkshire has largely avoided tech stocks. In fact, in Berkshire’s 2008 annual report, Mr. Buffett went so far as to say he preferred simple businesses. “If there’s too much technology, we won’t understand it,” he said.

But in the years that followed, Mr. Buffett’s view of technology changed significantly. In 2011, Berkshire invested $10.7 billion in shares of International Business Machines Corp.

IBM 0.10%

unlucky bet it’s all out in 2018. Berkshire made another big foray into the sector in 2016 when it revealed it had a nearly $1 billion stake in Apple. Inc.

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AAPL: 1.19%

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

as of the end of the third quarter. Earlier this year, Omaha, Neb. the conglomerate revealed it had built a nearly $4 billion stake in computer and printer maker HP. Inc.

The purchase of 60 million shares of TSMC, for which Berkshire paid approximately $4.1 billion, moved the chip maker into its top 10 stocks.

“TSMC welcomes all investors interested in buying and holding TSMC shares,” TSMC spokeswoman Nina Cao said in emailed comments. TSMC’s U.S. depositary receipts rose 11% on Tuesday, posting their biggest one-day gain since 2020.

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The timing of Berkshire’s investment is noteworthy. The semiconductor industry has faced a backlash this year. After surging profits during the pandemic, chip companies have cut costs, scaled back production and held back near-term capital spending plans due to falling demand.

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

Still, most chip executives are optimistic about long-term demand for their products. Global sales are expected to roughly double to more than $1 trillion a year in the next decade, thanks to U.S. and European governments subsidizing manufacturing capacity improvements and factory construction.

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

“There’s a school of thought that thinks we’re near the bottom in chip stocks,” said Kathy Seifert, an analyst at CFRA Research. Given that “Taiwan Semi is considered by many to be a premier chipmaker,” the bet makes sense for Berkshire, he added.

After two years of chip scarcity, we are now in chip captivity. What does the increase in semiconductor surplus 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 could also benefit from any potential easing of tensions between the US and China.

TSMC is headquartered in Taiwan, an autonomous island home to more than 23 million residents. While TSMC plans to expand existing plants in Japan and build multiple plants in the US, as well as possibly Singapore, its manufacturing capacity remains concentrated in Taiwan.

Beijing claims Taiwan as part of its territory and has threatened to take it by force if necessary. In response, the US promised to protect Taiwan from a Chinese attack.

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

Yoko Kubota contributed to this article.

Email Akane Otani at [email protected]

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