Semiconductors: The Warren Buffett Effect?

President Biden signed an executive order to implement the CHIPS and Science Act of 2022 in August,¹ which aims to build more resilient U.S. semiconductor supply chains. Three months later, Warren Buffett made a splash in the investment world by disclosing a USD 4.1 billion stake in chipmaker Taiwan Semiconductor Manufacturing Co Ltd (TSMC).²

Change sparked by supply-chain issues

Companies from the U.S., Taiwan and the Netherlands represented more than 90% of the global semiconductor investment opportunity,³ as measured by the MSCI ACWI Semiconductors and Semiconductor Equipment Index.⁴ The Taiwanese portion is dominated by semiconductor manufacturers, while Dutch companies focused on the semiconductor equipment industry. China’s semiconductor sector is relatively smaller and had an even breakdown between semiconductors and semiconductor equipment (as shown in the left chart).

In terms of economic exposure, we found that China and the U.S. were the largest revenue sources for constituents of the Index. The bottom right chart shows that U.S. semiconductor companies were more exposed to China than their peers in terms of revenue. TSMC generated 64% of its revenue from the U.S. and is building a factory in Arizona. The rebuilding of a semiconductor supply chain may generate risks as well as opportunities, and economic risk exposure analysis could help assess the status of the transition.