Berkshire Hathaway (BRK.A -0.38%) (BRK.B -0.40%) CEO Warren Buffett used to have a reputation for being somewhat averse to the technology sector. Through his years of market-crushing performance, the famously successful investor generally preferred to put his company’s money behind businesses with streamlined models operating in relatively simple industries, and tech companies have a reputation for complexity.
But clearly, Buffett is no longer avoiding technology stocks. In fact, Berkshire has more equity holdings in technology companies than any other sector — and by a substantial margin. Read on for a look at Berkshire Hathaway’s three largest tech stock holdings.
Apple (AAPL 1.01%) is not only Berkshire’s biggest tech stock holding but also, by far, the investment conglomerate’s biggest overall stock holding. With Apple stock accounting for nearly 42% of Berkshire’s overall stock portfolio, it wouldn’t be a stretch to say that it’s Buffett’s favorite company. Take a second to consider that Bank of America stands as the Oracle of Omaha’s second-largest equity holding by weight and accounts for “only” 10.3% of its overall portfolio holdings.
Buffett has gone on record to describe Apple as potentially the best business he knows of. He has also said his company’s massive investment in the stock essentially makes it Berkshire’s third core business pillar — in addition to its insurance and railway transportation units.
Why have Buffett and Berkshire pushed so heavily into Apple stock? It’s probably because the company is enormously profitable and has many advantages that fit the Buffett investing mold.
Apple has tremendous brand strength and an approach to design and customer management that has helped it absolutely dominate the mobile hardware space and score big wins in other categories. Customers are willing to pay a premium for its products and services, and the company is managing to capture roughly 80% of overall profits made on smartphone hardware worldwide.
Through its streamlined, easy-to-use products, Apple has also built an encompassing software-and-services component that helps keep customers locked into its ecosystem. With its high-quality hardware, profitable software services, and incredible brand strength, it’s not hard to see why Buffett loves Apple.
2. Activision Blizzard
Berkshire’s second-largest technology holding is a relatively recent addition to its portfolio. The strategy behind the investment is also somewhat unconventional for Buffett’s investment conglomerate.
Berkshire began buying shares of Activision Blizzard (ATVI -0.31%) in late 2021, shortly before Microsoft (MSFT 0.30%) announced it reached an agreement to acquire the video game company in a $68.7 billion all-cash deal. Following the acquisition news, Berkshire went into overdrive purchasing Activision Blizzard stock because shares continued to trade at a substantial discount to the $95 per-share purchase price shareholders would be closed out at following the deal’s completion.
At one point last year, Berkshire owned roughly 9.5% of Activision Blizzard stock. The investment conglomerate trimmed its holdings in the third quarter but still owns roughly 7.7% of the gaming company’s shares. The position accounts for roughly 1.5% of Berkshire’s total equity portfolio.
With Activision Blizzard stock currently trading at roughly $77 per share, investors stand to see a 23% return on shares purchased at today’s prices if the deal closes. But there are doubts that it will be able to clear antitrust challenges from the Federal Trade Commission and regulators in other key geographic markets. While acquiring the publisher would undoubtedly make Microsoft a much stronger player in the gaming space and the overall tech industry, it’s far from clear that the buyout would crush the competition in these categories.
Sony‘s PlayStation 5 consoles have sold significantly more than Microsoft’s newest generation of Xbox consoles. Microsoft also faces direct competition from Chinese gaming and media giant Tencent, the Steam PC game distribution platform, and a wide range of other publishers across different platforms. Outside of the gaming space, Microsoft will almost certainly argue that the Activision Blizzard acquisition is reasonable, given the competition it faces from fellow tech giants, including Apple, Amazon, Meta Platforms, and Alphabet.
3. Taiwan Semiconductor Manufacturing
Buffett and Berkshire made a big move into Taiwan Semiconductor Manufacturing (TSM -0.23%), also known as TSMC, in the third quarter. The investment conglomerate initiated a position with the semiconductor fabrication leader with a $4.1 billion purchase, making it the company’s third-largest overall stock holding. TSMC also stands as the 10th-largest overall stock holding and accounts for roughly 1.4% of the company’s equity portfolio.
When it comes to industry dominance and competitive moats, few companies are better positioned than TSMC. The company absolutely dominates the semiconductor fabrication space, accounting for roughly 55% of contract-based chip manufacturing worldwide. Even more impressive, it captures more than 90% of the market for high-performance chips that offer attractive profit margins.
It’s not a stretch at all to say that TSMC is one of the most important companies in the world. From mobile devices to automobiles, data centers, and everyday appliances, the capabilities enabled by semiconductors have never been more central to everyday life. And high-performance semiconductors are virtually certain to become increasingly more essential going forward.
In addition to secular growth trends that should help propel long-term growth for the semiconductor fabrication industry, TSMC looks attractive from a valuation standpoint.
With the stock trading at roughly 15 times expected forward earnings and paying a dividend that’s yielding roughly 2.4%, TSMC could deliver big wins for long-term investors who buy the stock at today’s prices.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Keith Noonan has positions in Activision Blizzard. The Motley Fool has positions in and recommends Activision Blizzard, Alphabet, Amazon.com, Apple, Bank of America, Berkshire Hathaway, Meta Platforms, Taiwan Semiconductor Manufacturing, and Tencent. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.