The next apple? Buffett: The world cannot live without TSMC

“Stock God” Buffett shot again, this time turning to TSMC, one of Apple’s important suppliers! Buffett’s Berkshire disclosed that it bought TSMC ADR shares for the first time, valued at more than 4.1 billion US dollars (about 128 billion Taiwan dollars). It also soared 7.8%, and the market value returned to above 12 trillion yuan. Experts believe that Buffett’s reason for buying TSMC is that “he believes that the world cannot live without products produced by TSMC.”

According to comprehensive foreign media reports, Berkshire’s submission to the US Securities and Exchange Commission (SEC) shows that the company currently holds approximately 60.1 million US stock depositary receipts (ADRs) of TSMC, the world’s largest wafer foundry, worth more than 41 million shares. One hundred million U.S. dollars.

Apple stock is the largest investment in Berkshire’s $306.2 billion stock portfolio. Except for its previous purchase of Apple, Berkshire usually does not make big bets on technology stocks. This time, it is quite rare to make a big investment in TSMC.

Driven by strong demand from customers such as Apple, TSMC’s third-quarter profit surged by 80%.

Tom Russo, a partner at financial advisory firm Gardner, Russo & Quinn, who owns Berkshire shares, said, “Berkshire believes that the world cannot live without products made by TSMC, and that only a few companies have access to huge capital to supply semiconductors, which are very important to people. life is becoming more and more important.”

Berkshire began to buy Apple shares in 2016, and by mid-2018, it held a cumulative 5% of Apple’s shares, spending $36 billion, and with Apple’s astonishing rise in 2022, the company has become Buffett’s largest publicly traded stock, Market capitalization estimates make up nearly 40% of Berkshire’s portfolio.

And TSMC, one of Apple’s largest suppliers, has also entered Buffett’s portfolio. Does it mean that TSMC will also become the next Apple?

Seekingalpha, a Wall Street capital market analysis agency, pointed out that TSMC’s increased capital expenditure, higher dividend distribution, and low price-to-earnings ratio are enough to show that it is a classic “Buffett-style” stock that may achieve Buffett-style annual returns in the next 10 years.

According to FactSet data, TSMC’s capital expenditure in 2021 is 36 billion US dollars, which is expected to increase to 52 billion US dollars by 2024. TSMC’s massive capex is expected to pay off quickly as free cash flow soars from $6.6 billion in 2021 to $22.8 billion in 2024.

Global chip demand continues to grow, and by 2025, TSMC’s sales will grow at a compound annual growth rate of 19%; more importantly, since 2003, TSMC has insisted on paying dividends every year, and the dividend has continued to increase in the past four years.

Although TSMC’s share price has almost halved since the beginning of this year, with the sharp rebound in technology stocks in November, the share price has gradually stabilized.

In the past 20 years, in addition to bear markets and bubbles, TSMC has brought investors 17 to 21 times the profit; analysts predict that TSMC’s future investment rate will continue to hit high, which may mean that inflation-adjusted The return is 93 times.

TSMC’s previous reasonable price-earnings ratio was 19.7 times, and its current price-earnings ratio is about 11.3 times, which is in a relatively low-end area.

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