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.
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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.
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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
