Buffett’s Quick $3.7 Billion Sale of TSMC Stock Spooks Investors

(Bloomberg) — Warren Buffett slashed his holding of Taiwan Semiconductor Manufacturing Co. just months after disclosing a major stake, an unusually quick reversal by the legendary stock picker that’s chilling investor sentiment toward the chip giant.

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Buffett’s Berkshire Hathaway Inc. cut its holding of TSMC’s American depositary receipts by 86% last quarter, according to the latest filing. Assuming it sold them at the average price over the period, the stake sale would have fetched $3.7 billion.

Shares of the world’s largest chip foundry slid as much as 4% in Taipei following the news, amid broad market losses. TSMC had jumped in November amid news that Buffett had acquired a stake worth about $5 billion, and it’s still up more than 40% from an October low.

“It’s surprising that Berkshire cut its holding so much in just a quarter, which differs from its past practice of long-term investment and continuing to add shares,” said Tony Huang, vice president at Taishin Securities Investment Advisory Co.

The chip industry has had to contend with Covid-induced supply disruptions in China and a slump in demand for electronics amid surging inflation. TSMC cut its spending target by about 10% in 2022 to about $36 billion after the Biden administration slapped new restrictions on China’s access to critical technologies.

The economics of the industry are shifting too. Amid US-China political tensions, governments in Washington, Tokyo and Brussels are all pushing TSMC to help build local production capabilities. This threatens to drive up its costs.

Late last year appeared to be a good time to buy TSMC shares as a value investor. Its forward price-to-earnings ratio hit 10.3 times in October, the lowest since 2015, before bouncing back to nearly 14 times in November, according to data compiled by Bloomberg.

The Taiwanese chipmaker’s shares had rallied amid a rise global chip stocks as investors tried to gauge a bottom. It extended gains last month even after it announced plans to further lower spending and signaled its first quarterly revenue drop in four years.

While the stock will likely suffer near term on news of Buffett’s selldown, TSMC’s longer term outlook is still positive, according to Taishin Securities’ Huang.

“Many global investors continue adding its shares with its fundamentals improving, including better utilization rates and its leadership role in advanced technology,” he said.

–With assistance from Debby Wu.