How Warren Buffett Made a Bet on Apple Without Buying More Apple Stock
$Berkshire Hathaway-A (BRK.A.US)$ $Berkshire Hathaway-B (BRK.B.US)$ Berkshire's 13F filing following third-quarter 2022 earnings revealed a surprising purchase -- 60 million shares of $Taiwan Semiconductor (TSM.US)$ . TSMC manufactures chips for the most prominent semiconductor companies, including Apple.
Why this is a wise strategy
The TSMC purchase amounts to "concentrated diversification." It benefits Berkshire because it diversifies Buffett's portfolio while exposing itself more deeply to $Apple (AAPL.US)$ . Since over 25% of TSMC's business involves Apple, that means just under 75% does not. Many of TSMC's other clients -- which include $Advanced Micro Devices (AMD.US)$ , $Broadcom (AVGO.US)$ , $NVIDIA (NVDA.US)$ , and $Qualcomm (QCOM.US)$-- lead niches within the semiconductor industry.
Moreover, Buffett likes market leaders, and TSMC fits that description. According to TrendForce, TSMC produces slightly more than half of the world's semiconductors. That dominance comes largely from maintaining technical leads over companies like Intel and Samsung. That fact means that its segment-leading clients, including Apple, will likely continue to turn to TSMC.
Investors will also like that TSMC holds the potential as a profitable stand-alone investment. Its revenue in the first nine months of 2022 of $56 billion grew 43% compared with the same period in 2021. Also, its nearly $25 billion in net income left it plenty of cash to invest in the business and pay investors like Buffett more than $7 billion in dividends.
Why this is a wise strategy
The TSMC purchase amounts to "concentrated diversification." It benefits Berkshire because it diversifies Buffett's portfolio while exposing itself more deeply to $Apple (AAPL.US)$ . Since over 25% of TSMC's business involves Apple, that means just under 75% does not. Many of TSMC's other clients -- which include $Advanced Micro Devices (AMD.US)$ , $Broadcom (AVGO.US)$ , $NVIDIA (NVDA.US)$ , and $Qualcomm (QCOM.US)$-- lead niches within the semiconductor industry.
Moreover, Buffett likes market leaders, and TSMC fits that description. According to TrendForce, TSMC produces slightly more than half of the world's semiconductors. That dominance comes largely from maintaining technical leads over companies like Intel and Samsung. That fact means that its segment-leading clients, including Apple, will likely continue to turn to TSMC.
Investors will also like that TSMC holds the potential as a profitable stand-alone investment. Its revenue in the first nine months of 2022 of $56 billion grew 43% compared with the same period in 2021. Also, its nearly $25 billion in net income left it plenty of cash to invest in the business and pay investors like Buffett more than $7 billion in dividends.
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