Warren Buffett is the world’s greatest stock market investor. So, I like to keep an eye on his trades.
Last quarter, he made a very interesting move. Let me explain.
Buffett just bought a chip stock
In the past, Buffett wasn’t a big fan of the technology sector. In his words, this sector wasn’t in his ‘circle of competence’.
But in recent years, his attitude towards tech has changed. Today, he has a huge holding in Apple (worth over $130bn). He also has positions in Amazon, Snowflake, Visa, Mastercard, HP and Verisign.
What stands out to me, however, is that in Q3, Buffett branched out into the semiconductor space.
According to 13F regulatory filings, the investment guru bought $4.1bn worth of shares in Taiwan Semiconductor Manufacturing Company (NYSE: TSM) – the world’s largest chip manufacturing business – last quarter.
Consequently, Taiwan Semi is now a top 10 holding for the investment guru.
Long-term growth potential
There are a couple of takeaways from this move, to my mind.
One is that Buffett obviously sees long-term investment potential here. This makes sense. Semiconductors play a crucial role in today’s digital world, powering everything from smartphones to electric vehicles. And looking ahead, demand for chips is likely to increase on the back of the growth of industries such as artificial intelligence (AI), cloud computing, 5G and robotics.
It’s worth noting here that experts believe the global semiconductor market could be worth around $1.4trn by 2029, more than double what it’s worth today. This industry growth should provide tailwinds for chip stocks.
Another is that he sees value in the space right now. This year, chip stocks have taken a massive hit on the back of the global economic slowdown. Buffett clearly sees an opportunity after this decline.
My semiconductor stocks
I don’t own this particular chip stock at present. However, I do own a number of other stocks in this area of technology as, like Buffett, I’m bullish on the industry. Currently, I own shares in:
- Nvidia – a leading designer of high-power graphics processing units (GPUs). Its products are used for AI, autonomous driving, data centres, video gaming and more.
- ASML – a leading maker of advanced semiconductor manufacturing equipment. It actually sells equipment to Taiwan Semi.
- Lam Research – another top maker of advanced semiconductor manufacturing equipment. Nearly all high-powered chips today are made with its technology.
Looking ahead, I plan to keep buying more of these stocks. I’m also looking at a few others in the sector including KLA, a maker of chip inspection equipment, and Advanced Micro Devices, which develops high-performance chips for a range of industries, and Taiwan Semiconductor itself.
It’s worth pointing out that chip stocks are higher-risk investments. The chip industry is cyclical and as a result, chip stocks tend to be quite volatile. We’ve seen this volatility this year. Most stocks have experienced significant pullbacks.
However, I’m comfortable with this volatility. I’m looking to the long term here, and I think the prospects for the sector in the long run are attractive.
