Home Views Tech

Buffett's TSMC selloff backs Apple over its supplier

Tim Culpan
Tim Culpan2/16/2023 12:55 PM GMT+08  • 4 min read
Buffett's TSMC selloff backs Apple over its supplier
Photo: Laurenz Haymann via Unsplash
Font Resizer
Share to WhatsappShare to FacebookShare to LinkedInMore Share
Scroll to top
Follow us on Facebook and join our Telegram channel for the latest updates.

Just months after disclosing a huge stake in Taiwan Semiconductor Manufacturing Co (TSMC), Warren Buffett’s Berkshire Hathaway reported dumping almost all of it. In doing so, the world’s most famous investor may have left more than US$1 billion ($1.33 billion) in profit on the table while revealing even he may not be immune to macroeconomic jitters.

Berkshire held 60.06 million American depositary receipts in the world’s biggest chip manufacturer at the end of September, worth US$4.12 billion at the time, according to an exchange filing. By the end of the year, those holdings fell to 8.3 million. Berkshire has not disclosed the prices it paid or received for these shares, but a quick look at TSMC’s stock price chart shows that the timing was unfortunate: Shares climbed 29% to hit a 10-month high earlier this week before news of the selloff brought the shares down again.

So, at current prices, instead of sitting on US$5.8 billion of TSMC stock, Berkshire has a US$765 million stake.

It’s difficult to criticise the Omaha-based company for getting nervous. TSMC’s US-listed shares sank 16% in the third quarter and climbed a mere 8.7% in the next. At that time, interest rates were rising, the global economic outlook didn’t look particularly rosy and TSMC’s biggest client, Apple, was grappling with supply problems after a Covid outbreak hit factories in China.

And for years, portfolio managers have been well aware that semiconductor stocks tend to rise and fall in tandem with the economic cycle. If a global recession was coming, then there were probably better bets to make.

Instead of holding on to TSMC, Berkshire chose to dump it and maintain its position in Apple, boosting its stake by a mere 333,856 shares. The iPhone maker remains Berkshire’s biggest bet among reported holdings, with a current value of more than US$137 billion. That’s not a terrible move; the stock is up 18% for the year.

See also: Meta to cut 10,000 jobs, eliminate 5,000 more vacant positions

But now Buffett and vice-chairman Charlie Munger are faced with the same hard decision every other investor faces in these uncertain times: Do you invest in the world’s most important technology supplier, or do you keep backing its chief client, which happens to be the most valuable company on the planet?

Earlier this month, Apple posted the widest revenue miss for a holiday period in seven years, but CEO Tim Cook told investors that supply chain woes had subsided and predicted that consumers would be willing to “stretch” to buy an iPhone even in uncertain times.

See also: Silver Lake, CPPIB to buy Qualtrics at a US$12.5 bil valuation

Two weeks earlier, TSMC forecast its first sales decline in four years at a scale wider than analysts had expected. But like Apple, it painted a rosy picture. The second half of the year will be much stronger, it said, and it will eke out an increase in revenue for the full year. Posting any growth during a downturn is a tough task, so investors cheered on that pronouncement and sent the shares higher.

But they may be wrong, and Berkshire right. With expensive yet useful products, Apple is the ultimate consumer play. Should the economy be more robust than doomsayers believe, then maintaining the faith could end up being the wise choice. As if to prove the point, US retail sales jumped 3% in January, the most in two years and well ahead of economists’ estimates for a 2% gain, Commerce Department data showed Wednesday.

By contrast, staking money on a cyclical industry with huge capital budgets that keep rising could be just too risky for the Oracle of Omaha, especially if a strong economy warrants further rate increases and thus higher borrowing costs. Any investment is a risk, so it could be that Berkshire simply thinks the odds are better with the name it already knows. — Bloomberg Opinion

Loading next article...
The Edge Singapore
Download The Edge Singapore App
Google playApple store play
Keep updated
Follow our social media
Subscribe to The Edge Singapore
Get credible investing ideas from our in-depth stock analysis, interviews with key executives, corporate movements coverage and their impact on the market.
© 2022 The Edge Publishing Pte Ltd. All rights reserved.