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

Warren Buffett’s Berkshire Hathaway Inc.

BRK.B 0.35%

makes a multi-billion dollar bet on a Taiwanese chip maker.

For years, Berkshire has largely avoided technology stocks. In fact, in Berkshire’s 2008 annual report, Mr. Buffett went so far as to say that he preferred a simple business. “If there’s a lot of technology, we don’t understand it,” he said.

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

IBM 0.10%

an unfortunate condition that was completely removed in 2018. Berkshire made another big foray into the sector in 2016, when it disclosed it had a stake in Apple worth nearly $1 billion. Inc.

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AAPL 1.19%

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

until the end of the third quarter. Earlier this year, the Omaha, Neb., conglomerate. revealed that it has invested nearly $4 billion in computer and printer maker HP. Inc.

Berkshire’s purchase of 60 million shares of TSMC, for which it paid about $4.1 billion, catapulted 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 remarkable. The semiconductor industry faced a reckoning this year. After enjoying a surge in profits during the pandemic, chip companies have slashed costs, scaled back production and scaled back capital spending plans in the short term due to reduced demand.

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

Still, many chip executives remain optimistic about long-term demand for their products. Global sales are expected to nearly double to more than $1 trillion over the next ten years, thanks to improvements in manufacturing capacity and subsidies for plant construction by the US and European governments.

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

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

After two years of a chip shortage, we now find ourselves in a chip glut. What does a deepening semiconductor supply 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: Coby Wolfe/Bloomberg News

Berkshire’s investment would also benefit from any cooling of tensions between the US and China.

TSMC is headquartered in Taiwan, a self-governing island home to more than 23 million residents. Although TSMC has plans to expand existing plants in Japan and build several plants in the US, as well as possibly in Singapore, its manufacturing capacity is concentrated in Taiwan.

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

After months of tension, President Biden and Chinese President Xi Jinping this week tried to normalize 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.

Write to Akane Otani at [email protected]

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