Warren Buffett buys billions of dollars worth of TSMC stock

There's gold in them there chip mountains? World's sixth richest man seems to think so

Warren Buffett, the sixth richest man on the planet and historically a tech averse stock market gambler, has bought around $5 billion worth of Taiwan Semiconductor Manufacturing Co shares.

According to an SEC filing, Buffet’s investment vehicle Berkshire Hathaway said it bought around 60.1 million of the chip contract maker’s American depository shares in the calendar third quarter.

The timing of the purchase comes after the wider chip industry peaked in the latest buying cycle following several years of unprecedented orders for semiconductors during the pandemic. Now certain markets including PCs and smartphones are experiencing a slowdown.

As the world's biggest contract chip manufacturer, TSMC is still reporting high levels of growth, with revenues beating its own estimates in its most recent trading results for Q3, growing 10 percent year-on-year to NT$613.14 billion ($20.23 billion)

However even TSMC is not immune to weakening of demand, with CFO Wendell Huang saying on the conference call: "Moving into the fourth quarter 2022, we expect our business to be flattish as the end market demand weakens, and customers' ongoing inventory adjustment is balanced by continued ramp-up for our industry-leading 5nm technologies."

TSMC also slashed its capital expenditure by 10 percent. The company had intended to spend at least $40 billion this year but so far has forked out around $25 billion and is likely to invest about $36 billion.

In some positive short term news, TSMC was granted a one-year license from the US Department of Commerce that allows is to sidestep bans on exports of advanced chip and equipment to customers in China.

Richard Gordon, vice president for semiconductors and electronics at Gartner, told us previously that it was "already seeing pullbacks in announced capital expenditure as semi companies try to throttle back output."

"This will slow the addition of new fab capacity as vendors try to align it to a recovery in the market in beginning in 2024 and accelerating in 2025."

Buffett tends to see the bigger picture when homing in on businesses to invest in, and longer term the chip industry has some growth potential in the automotive industry with the proliferation of electric vehicles and self-driving cars, not to mention AI, clouds, other forms of general business IT and areas such as IoT and connected homes.

The 92-year-old has amassed a net worth of $103 billion, and while he has dabbled in tech stock, has previously said he wouldn't invest in businesses he didn't understand. For example, he bought a multi-billion stake in Oracle in late 2018 and offloaded it in early 2019.

He said at the time: "I've followed it [Oracle] from the standpoint of reading about it but I felt I didn't understand the business."

He added: "I don't think, particularly after my experience with IBM, I don't think I understand exactly where the cloud is going," he said.

Berkshire Hathaway began offloading its stake in IBM in 2017 and entirely exited the stock in 2018. He then took a position on Apple and this year bought HP Inc stock worth about $4.2 billion. So maybe the notoriously tech stock averse investor is gradually changing his mind. ®

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