TSMC Stock Sales Shock Investors After Buffett Sells for $4.9 Billion

The legendary stock picker Warren Buffett made an unusually quick reversal by slashing his holdings in Taiwan Semiconductor Manufacturing Co (TSMC) just months after disclosing a large stake in the chip giant. This reversal is chilling investor sentiment toward the chip giant.

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There was an 86% drop in Buffett's Berkshire Hathaway holdings of TSMC's American depositary receipts, according to the latest filing from the company.

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Based on the assumption that the stakes were able to be sold at the average price over the period, the company would have been able to fetch US$3.7 billion (S$4.9 billion).

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Amid broader market losses, shares of Taiwan's largest chipmaker closed at NT$525, or down 3.27%, in Taipei after the news was released, following the news.

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It may seem surprising that TSMC is still up more than 40 percent from the lows it hit in October amid news that Warren Buffett had acquired a stake worth about US$5 billion, but it is still up more than 40 percent from the low of October.

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“Berkshire has made a surprise cut to its holdings in just a quarter, which differs significantly from its past practice of long-term investments and adding shares to its holdings,” said Tony Huang, vice president at Taishin Securities Investment Advisory.

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The chip industry has had to deal with supply disruptions caused by the Covid-19 virus in China and a slump in demand for electronics in the midst of rising inflation, which has hit the chip industry hard.

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China's access to critical technologies is being restricted by the Biden administration, which has cut TSMC's spending target for 2022 by about 10% to US$36 billion.

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There is also a shift in the economics of the industry as a whole.

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The US, Japan, and Belgium governments have all been pushing TSMC in order to help build local manufacturing capabilities in the midst of political tensions between the US and China. As a result, its costs are likely to increase as a result.

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TSMC appeared to be a good time to buy shares of the company as a value investor in late 2022.

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According to data compiled by Trade Algo, the forward price-to-earnings ratio of the company reached 10.3 times in October, its lowest since 2015, before bouncing back to nearly 14 times in November.

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As investors in the global chip market scrambled to gauge a bottom for the sector, shares of the Taiwanese chipmaker had rallied amid a rise in global chip stocks. Despite lowering its spending plans and signaling the first quarterly drop in revenues in four years, the company still managed to extend gains in January, even after announcing plans to further reduce its expenses.

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There is a likelihood that TSMC's stock will suffer in the near term due to news of Mr. Buffett's sell-down, however, Taishin Securities' Mr. Huang maintains that TSMC's long-term outlook is still positive.

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“There are a number of global investors who continue to add its shares as its fundamentals continue to improve, including better utilization rates and its leadership role in advanced technology,” he said.