What happened
Berkshire Hathaway (BRK.A 0.65%) (BRK.B 0.70%) has dumped much of its stake in Taiwan Semiconductor Manufacturing (TSM +3.29%), just months after buying into the chipmaker. Investors are following the Oracle of Omaha's lead, sending shares of Taiwan Semi down as much as 6.1% on Wednesday morning.
So what
Taiwan Semiconductor is responsible for a significant portion of global chip demand, an enviable position to be in given the push to make appliances, vehicles, and all sorts of other devices "smart." But the semiconductor industry is also famously cyclical, and the stocks traded off last year on concerns about a global recession.
Berkshire Hathaway bought in during the downturn, disclosing in November it had bought about $4.1 billion worth of Taiwan Semi during the third quarter. It seemed at the time to be straight out of CEO Warren Buffett's playbook: buying when the stock is down but the long-term opportunity remains intact.
But in the fourth quarter, Berkshire apparently decided to cash in on an upswing in the share price. Berkshire's latest disclosure shows that it cut its position in Taiwan Semi by 51.8 million shares in the last three months of 2022, shedding about 86% of its initial investment.
The move likely caught investors off guard, as Buffett has famously said his preferred holding period is "forever."
NYSE: TSM
Key Data Points
Now what
Even with Wednesday's decline, the stock is still up nearly 20% from when Berkshire revealed its stake. So, the investment was likely a profitable one for Berkshire.
It's impossible to know exactly what Berkshire Hathaway managers were thinking when they made the move, but Taiwan Semiconductor does face an extended period of massive capital expenditures as it builds out its footprint in the U.S. and elsewhere. On Wednesday, the company's board approved a capital injection of up to $3.5 billion to build a new facility in Arizona.
There is also significant geopolitical risk given the tensions between China and Taiwan, and the continued fears of what an economic slowdown could do to semiconductor demand.
For long-term focused investors, there is still a lot to like about Taiwan Semiconductor given the expectations for ever-increasing chip demand. But a move by Berkshire is always going to attract attention, and the stock is under pressure as a result.
