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

Warren Buffett’s Berkshire Hathaway Inc. BRK.B -0.18%decrease; red down pointing triangle is making a multibillion-dollar bet on a Taiwanese chip maker.

Berkshire’s investment in Taiwan Semiconductor Manufacturing Co., TSM 10.84%increase; green up pointing triangle disclosed late Monday, marks its latest step into an industry that Mr. Buffett had shied away from for much of his career.

For years, Berkshire mostly avoided technology stocks. In fact, in Berkshire’s 2008 annual report, Mr. Buffett went so far as to say he preferred simple businesses. “If there’s lots of technology, we won’t understand it,” he said.

But over the following years, Mr. Buffett’s view of technology shifted significantly. Berkshire made one of its biggest forays into the sector in 2016, when it disclosed it had a nearly $1 billion stake in Apple Inc. AAPL 1.01%increase; green up pointing triangle The iPhone maker is now Berkshire’s biggest single stockholding. Berkshire also had a roughly $1 billion stake in Amazon.com Inc. as of the end of the third quarter. And its purchase of 60 million shares of TSMC, worth roughly $4.1 billion, has vaulted the chip maker into its top 10 stockholdings.

“TSMC welcomes all investors with the propensity to buy and hold TSMC’s stock,” TSMC spokeswoman Nina Kao said in emailed comments. American depositary receipts of TSMC soared 12% Tuesday, on track for their biggest one-day gain since 2020.

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The timing of Berkshire’s investment is notable. The semiconductor industry has faced a reckoning this year. After enjoying a surge in profits during the pandemic, chip companies have cut costs, reduced output and reined in near-term capital spending plans because of slumping demand.

TSMC hasn’t been immune to those pressures. Its ADRs are down 42% from their January peak.

Still, many chip executives remain optimistic about long-term demand for their products. Global sales are expected to roughly double to more than $1 trillion annually in the next decade, thanks to improvements in manufacturing capacity and subsidies for factory building by governments in the U.S. and Europe.

TSMC is also a key provider of chips to Apple. Mr. Buffett has described the iPhone maker as Berkshire’s second-most important business, following its insurance units.

“There’s a school of thought that believes we’re close to a bottom for chip stocks,” said Cathy Seifert, a CFRA Research analyst. Given “Taiwan Semi is considered by many to be a premier chip maker,” the bet makes sense for Berkshire,” she added.

Taiwan Semiconductor Manufacturing’s American depositary receipts were on track Tuesday for their biggest one-day gain since 2020.PHOTO: CFOTO/ZUMA PRESS

Berkshire’s investment also stands to benefit from any potential cooling of tensions between the U.S. and China.

TSMC’s headquarters are in Taiwan, the self-ruled island that is home to more than 23 million residents. Although TSMC has been making plans to expand existing factories in Japan and build multiple plants in the U.S., as well as potentially in Singapore, its production capacity remains concentrated in Taiwan.

Beijing has claimed Taiwan is part of its territory and threatened to take it by force if necessary. In response, the U.S. has vowed to defend Taiwan from a Chinese attack.

After months of tension, President Biden and Chinese leader Xi Jinping sought this week to stabilize relations between their two countries. They met Monday in Bali, Indonesia, for the first time since Mr. Biden became president.

Yoko Kubota contributed to this article.