If any investor has stood the test of time, it is Warren Buffett. For years, the “Oracle of Omaha” has had a rock-star-like presence in the investing world. His annual Berkshire Hathaway shareholders meeting draws literally tens of thousands of loyal fans who are also investors. Known for his long buy-and-hold strategies, and with a massive portfolio of public and private holdings, he remains one of the preeminent investors in the entire world.
Those that follow the investing legend know that, aside from a massive position in Apple, Buffett largely steers clear of technology stocks. He stated years ago he did not want to own companies he did not understand. While the Berkshire Hathaway portfolio holds a few additional positions in the sector, the amount is very limited.
That all changed this week when the legendary investor took a massive $5 billion stake in Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM). Though it has been crushed over the past year, with the demand for chips expected to continue skyrocketing in cars, appliances and, of course, advanced chips for Apple’s computers and phones, the stock has a ton of potential at current levels.
Given this huge $60 million American depository receipts purchase, we thought it interesting that BofA Securities recently said it is time to start putting a foot in the proverbial semiconductor investing waters. Its recent research report highlights the top themes for the sector and the firm’s top picks. We picked one stock from each theme. While all are rated Buy it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
The BofA team noted this in its report on semiconductors and semiconductor capital equipment:
Macro trends remain fluid but we think seasonal trends and desire to look to the second half of 2023 and 2024 recovery could re-attract investors to chip stocks. Bears will likely argue consumer demand remains under pressure; seasonal boost could fade and US/China conflict exposes semiconductors to unique risks. However, we think the bull case for semiconductors is also compelling.
Chipmaking
Applied Materials Inc. (NASDAQ: AMAT) is one of the premier semiconductor capital equipment stocks. It provides manufacturing equipment, services and software to the semiconductor, display and related industries. It operates through three segments.
The Semiconductor Systems segment develops, manufactures and sells various manufacturing equipment that is used to fabricate semiconductor chips or integrated circuits. This segment also offers various technologies, including epitaxy, ion implantation, oxidation/nitridation, rapid thermal processing, physical vapor deposition, chemical vapor deposition, chemical mechanical planarization, electrochemical deposition, atomic layer deposition, etching and selective deposition and removal, as well as metrology and inspection tools.
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