Warren Buffett Just Bet $4 Billion on Taiwan Semi (TSM) Stock. Why?

  • Warren Buffett bought over $4 billion of Taiwan Semi (TSM) stock, his company reported yesterday.
  • TSM is the largest “contract chip maker” in the world.
  • Apple (AAPL) is one of TSM’s largest customers.
TSM stock - Warren Buffett Just Bet $4 Billion on Taiwan Semi (TSM) Stock. Why?

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One of the top trending stories today is that Warren Buffett, through Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B), his holding company, bought over $4 billion of Taiwan Semiconductor (NASDAQ:TSM) stock. Berkshire now holds slightly over 60 million shares of Taiwan Semi, the world’s leading contract chipmaker. TSM stock is rallying 12% on the news.

One of Taiwan Semi’s largest customers is Apple (NASDAQ:AAPL). AAPL stock is Berkshire’s largest investment, accounting for roughly 40% of its total portfolio.

Reactions to the News

“I suspect Berkshire has a belief that the world cannot do without the products manufactured by Taiwan Semi,” Tom Russo, a partner at investment advisory firm Gardner, Russo, & Quinn told The Economic Times, an Indian newspaper. Based in Pennsylvania, Gardner, Russo, & Quinn owns shares of Berkshire Hathaway.

Meanwhile, Seeking Alpha columnist WideAlpha stated that, before today, TSM stock had tumbled 50% below its 52-week high, even though the chipmaker was posting “excellent” financial results.  The author also believes that TSM has high-profit margins that indicate it has strong, competitive advantages.

More Background on TSM Stock

On Nov. 10, Taiwan Semi reported that its revenue had jumped 56% year-over-year to $6.6 billion. In the third quarter, TSM’s revenue climbed 36% YOY to $20.23 billion, while its earnings per share came in at $1.79 and its gross margin soared 9.4 percentage points YOY to 60.4%.

“Looking ahead to 2023, we face challenges from entry ramp dilution, higher year-over-year increase in depreciation cost, rising inflationary cost, semiconductor cyclicality and overseas fab expansions,” said TSM CEO Wendell Huang on the company’s Q3 earnings call. He added that the firm was “working diligently” to reduce its costs.

Heading into today, TSM stock was up 12% in the last five days, but was still down nearly 40% in 2022.

On the publication date, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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