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 the Taiwanese chip maker.

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

But in the years that followed, Mr. Buffett’s views on technology changed dramatically. Berkshire took the biggest step in the industry in 2016, when it revealed that it has a $1 billion stake in Apple. Inc.

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Image of AAPL 1.19%

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

by the end of the third period. And its purchase of 60 million shares of TSMC, worth about $4.1 billion, has moved the chipmaker into the top 10.

“TSMC welcomes all interested parties to purchase and hold TSMC stock,” TSMC spokeswoman Nina Kao said in an emailed statement. TSMC’s American storage receipts rose 11% on Tuesday, marking their biggest one-day gain since 2020.

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The timing of Berkshire’s investments is notable. The semiconductor industry has been hit hard this year. After enjoying a surge in profits during the pandemic, chip companies have slashed prices, reduced output and re-imposed short-term spending plans due to the economic slowdown.

TSMC is not immune to these problems. Its ADRs are down 43% from their January peak.

However, many chip makers remain optimistic about long-term demand for their products. Global sales are expected to double to more than $1 trillion a year in the next decade, thanks to improvements in manufacturing technology and support for manufacturing in the US and Europe.

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

“There’s a school of thought that believes we’re about to get chip stocks,” said Cathy Seifert, a research analyst at CFRA. Given that “Taiwan Semi is considered by many to be the number one chip maker,” the bet makes sense for Berkshire, he added.

After two years of chip shortages, we now find ourselves in a chip glut. What does the proliferation of semiconductors mean for the industry? WSJ semiconductors reporter Asa Fitch joins Julie Chang to explain what made this possible and how the industry is moving forward. Photo: Kobi Wolf/Bloomberg News

Berkshire’s stock is also set to benefit from any potential cooling-off between the US and China.

TSMC is headquartered in Taiwan, a self-governing island with a population of over 23 million. Although TSMC has been planning to expand its existing factories in Japan and build several plants in the US, as well as in Singapore, its manufacturing capacity remains in Taiwan.

Beijing says Taiwan is part of its territory and has threatened to take it by force, if necessary. In response, the US vowed to protect Taiwan from China’s threat.

After months of tensions, President Biden and Chinese President Xi Jinping sought this week to normalize relations between their two countries. 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]

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