If you asked Warren Buffett to invest in tech companies 20 years ago, he’d say hard pass.
But times have changed. In the three months ended Sept. 30, Berkshire Hathaway spent $9 billion buying stocks, its latest 13F filing with US securities regulators on Monday (Nov. 14) shows. Of this, the largest chunk—$4.1 billion—went towards backing Taiwanese semiconductor company TSMC.
In a portfolio loaded with energy and financial stocks, Berkshire’s investments in tech are few and far between. Although, his “family jewel” Apple is a consumer tech company. And now, the world’s largest contract chip maker, TSMC, is an out-and-out blue chip technology company that sticks out in the pile.
Warren Buffet’s investing playbook didn’t involve tech for years
The 92-year-old legendary value investor has always looked for well-managed, undervalued companies. Buffett, who famously said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes,” invests with the intent to hold the securities indefinitely. The company has held Coca-Cola for 34 years and American Express for 29.
Following his own advice of “Never invest in a business you cannot understand,” Buffett has typically steered clear of tech stocks, that boom when times are good but also crash-and-burn during periods like the dot com burst. And in the early days of this decade, most tech companies hadn’t been around long enough to prove themselves. Even now, tech stocks are highly volatile, as this latest earnings quarter and mass layoffs showed.
Over the years, though, Buffett has made a few exceptions to his rule.
When Berkshire Hathway says tech investments…
Most of Buffet’s tech plays have been minor, suggesting a hesitance to really commit to tech.
When Berkshire began investing in Amazon in 2019, Buffet called himself an “idiot” for not investing in the stock sooner. The e-commerce giant’s impressive and sustainable path to revenue growth and profitability won over the tech stock skeptic. Still, Berkshire’s exposure to Amazon is tiny. It’s just 0.5% of the company’s portfolio.
Separately, the company bought a miniscule stake in data warehousing tech company Snowflake for $250 million when the company went public in September 2020, to make money off the IPO. The move wasn’t Buffett’s; it was decided by one of his younger lieutenants Todd Combs.
At the end of 2021, Buffett’s company owned less than 2% of embattled gaming company Activision Blizzard, representing 0.4% of its portfolio. Over the next three months, Buffett gave the green light to grow the stake to 9.5% in anticipation of Microsoft buying Activision. The arbitrage play on the acquisition was an out-of-character move to make short term gains. The company already shed exposure to the stock this quarter.
Earlier this year, Berkshire disclosed it had picked up a 11.4% stake in HP for $5 billion—still less than 1% of its portfolio. Berkshire has held stakes in IBM and Intel, too, but sold out.
The only real exception the “Oracle of Omaha” has made in the sector so far is Apple.
…it means Apple
What started off as a $1 billion modest investment in 2016 has become Berkshire Hathaway’s largest holding. Over the next two years, the investing giant spent $36 billion to acquire a 5% stake in the iPhone maker. Today, its value has quadrupled. Apple, which Buffett thinks of as his “third company” rather than a stock he owns, makes up 40% of Berkshire’s equity portfolio.
Of course, the stock is volatile. Just this year, Berkshire saw $36 billion wiped off from its Apple investment, but Buffett is a long-term investor that plays little heed to routine fluctuations. And Apple’s next frontier for growth isn’t tech hardware but subscriptions and services. The trillion-dollar legacy company has evolved to become a powerful brand name with competitive edges beyond tech, making Buffett’s position more aligned with his core investment philosophy after all.
“His [Buffett’s] investment in Apple is to gain ownership of the firm’s ability to create brand value as a consumer goods company, à la P&G [Procter & Gamble], and not necessarily for its ability to create groundbreaking technology,” explains Chad Astmann, a senior client partner and co-head of Korn Ferry’s asset and wealth management practice. Apple CEO Tim Cook concurs that Buffett “obviously views Apple as a consumer company.”
Charted: Berkshire Hathaway’s top stockholdings
TSMC and Berkshire Hathaway, by the digits
60 million shares: how many shares Berkshire picked up in TSMC
1.2%: stake Berkshire now has in TSMC
6.2%: TSMC’s stock popped in late Monday’s trading
80%: year-over-year jump in TSMC’s profits in the quarter ended Sept. 30
$377.5 billion: TSMC’s market cap as of November 2022
54%: total global foundry revenues that come from TSMC
Roughly half: share of Berkshire’s portfolio that are tech and communications businesses, according Edward Jones analyst Jim Shanahan’s estimates
25%: how much of TSMC’s revenues come from Apple. It’s the chip-maker’s largest customer by far. Given that insurance company Geico—one of Buffett’s best investments—being a Snowflake customer for some time played a part in the decision to invest in Snowflake, Apple could be a reason to back TSMC.
❤️🩹 A Taiwanese semiconductor titan is at the heart of the US-China tech fight
😟 TSMC’s great quarter is bad news for semiconductor supply chains
🍂 Warren Buffett’s big bets on oil are betraying the climate