Taiwan Semiconductor Manufacturing (TSM 0.72%) just received a considerable credibility boost. Warren Buffett's Berkshire Hathaway revealed in its third quarter 2022 13F filing with the Securities and Exchange Commission (SEC) that it now owns more than 60 million shares of the chip giant.

However, that position goes well beyond an interest in TSMC. Given the company's importance to the chip industry, the purchase may prompt interest not only in TSMC, but numerous other chip stocks as well.

Berkshire and TSMC

The fact that Buffett bought a semiconductor stock is notable. But upon closer inspection, TSMC checks many of the boxes of a Buffett investment. The semiconductor industry has become an irreplaceable part of people's lives, giving it the "forever" appeal that has attracted interest from Buffett throughout his career.

Moreover, at a price-to-earnings (P/E) ratio of 16, it has fallen to a reasonable valuation, and its dividend yield of 2.6% is well above the S&P 500 average of 1.6%.

Buffett famously avoided tech for most of his career. But when he finally changed his mind, Apple, TSMC's biggest client, ultimately became his largest investment. Now, the fact that TSMC is itself a top 10 Berkshire Hathaway holding makes Buffett a major semiconductor industry investor.

Implications for the industry

TSMC holds a technical lead over Samsung, Intel, GlobalFoundries, and others. This makes Nvidia, Advanced Micro Devices, Qualcomm, and even Intel among the companies dependent on the chip giant.

Investors should also take note of Berkshire's timing in this purchase. Semiconductor stocks have become known for their cyclical nature, and Buffett has long taken advantage of low cycles within the market to buy lower-cost shares. 

The Q3 filing means Berkshire bought its shares between July 1 and Sept. 30. During this time, TSMC reached $59.43, a two-year low, before staging a modest recovery. This means he probably bought shares at a discount of 50% to 60% from the 52-week high of $145 per share.

The implications also reach beyond TSMC. For one, Buffett's interest could point to a possible bottom within the chip industry. Indeed, most semiconductor stocks have traded higher in recent trading sessions.

The investment may reduce concerns about one of TSMC's most significant vulnerabilities. The company produces most of its chips in Taiwan, a country China has long threatened to invade. That danger has prompted many companies, including TSMC itself, to produce more in the U.S. and Europe. 

Nonetheless, the fact that Buffett invested billions may mean that governments and media outlets may have overemphasized that threat. This is a bullish signal for both TSMC and its clients.

Making sense of Berkshire's TSMC investment

In the end, one has to conclude that both TSMC and its most prominent clients are buys. Yes, chip industry stocks have taken a massive hit over the last year, and Taiwan's national security remains a concern.

Still, Buffett's purchase should quell concerns regarding the geopolitical dangers of investing in Taiwan. It also increases the likelihood that recovery for TSMC and its peers is at hand. That should bode well for chip investors regardless of their specific holdings.