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Buffett Bets On Apple Via TSMC Stocks: Motley Fool

Apple is by far the largest investment in Warren Buffett's Berkshire Hathaway portfolio. His 895 million shares mean that 39% of the portfolio's value is in Apple stock, Will Healey wrote for The Motley Fool.

Photo Insert: TSMC manufactures chips for the most prominent semiconductor companies, including Apple.

Although Apple is one of Buffett's biggest winners, such a significant position may appear to counter the investment strategy of Buffett and his team, which leaned toward more diversification. So, it's ironic that this investment has further increased.

The question for investors is whether the strategy will work for Buffett and for Apple shareholders looking to follow his lead. Berkshire's 13F filing following third-quarter 2022 earnings revealed a surprising purchase -- 60 million shares of Taiwan Semiconductor (TSMC).

The company manufactures chips for the most prominent semiconductor companies, including Apple.

According to estimates from Bloomberg and DigiTimes, TSMC relied on Apple for more than 25% of its revenue in 2021. This makes Apple TSMC's largest client. That is also a large enough share that TSMC stock could easily rise and fall with the fortunes of Apple. It also shows how critical TSMC is to Apple.

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The chips it makes go into critical Apple products such as the iPhone, iPad, and Mac computers, making the chipmaker an indispensable part of Apple's business.

The TSMC purchase amounts to "concentrated diversification." It benefits Berkshire because it diversifies Buffett's portfolio while exposing itself more deeply to Apple. Since over 25% of TSMC's business involves Apple, that means just under 75% does not.

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Many of TSMC's other clients -- which include Advanced Micro Devices, Broadcom, Nvidia, and Qualcomm -- lead niches within the semiconductor industry. Moreover, Buffett likes market leaders, and TSMC fits that description.

TrendForce says TSMC produces slightly more than half of the world's semiconductors. That dominance comes largely from maintaining technical leads over companies like Intel and Samsung. That fact means that its segment-leading clients, including Apple, will likely continue to turn to TSMC.

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