Billionaire Ken Griffin Shifts Focus from Microsoft to Taiwan Semiconductor

Billionaire investor Ken Griffin, the co-founder of Citadel, has been making noteworthy changes in his investment strategy over the past year. His hedge fund, Citadel, has been gradually selling off its shares of Microsoft while increasing its stake in Taiwan Semiconductor Manufacturing.

Understanding the investment moves of reputable money managers like Griffin can sharpen one’s investment skills. However, tracking these decisions isn't always straightforward.

To aid investors, the Securities and Exchange Commission mandates that institutional investors managing more than $100 million disclose their portfolios quarterly through a form known as 13F. This form serves as a detailed list of all trades and holdings by leading investment firms.

Griffin's recent 13F filings reveal a consistent trend: Citadel has reduced its investment in Microsoft, while actively purchasing shares of Taiwan Semiconductor Manufacturing.

Reasons for Selling Microsoft

Microsoft has played a pivotal role in promoting artificial intelligence (AI), notably through its $10 billion investment in OpenAI, the creator of ChatGPT. This investment has helped Microsoft to quickly embed AI capabilities into various parts of its business, encompassing its Office productivity tools, Azure cloud services, and LinkedIn.

While Microsoft has established itself as a leading player in the AI sector, questions have arisen regarding the sustainability of its dominance. The partnership with OpenAI has intensified competition, prompting rivals like Amazon and Alphabet to invest in a competing AI venture called Anthropic. Furthermore, Salesforce is set to introduce a rival service to Microsoft's Copilot AI.

Recently, Microsoft's stock valuation has seen a decline, yet its forward price-to-earnings (P/E) ratio remains high at 32.4. This is significantly above the S&P 500's average P/E of 22.7, indicating that it might be overvalued.

Griffin has been steadily offloading Microsoft shares over the past few quarters, as illustrated below:

• Q2 2023: 3.4 million shares
• Q3 2023: 5 million
• Q4 2023: 4.2 million
• Q1 2024: 2.9 million
• Q2 2024: 1.2 million

Although Microsoft continues to be an attractive player in AI, the competition's growing strength leads to uncertainty about its future. Thus, Citadel's choice to take profits from Microsoft while maintaining a limited investment makes strategic sense in the current climate.

Reasons for Buying Taiwan Semiconductor

In my view, Taiwan Semiconductor, commonly known as TSMC, presents a solid long-term investment opportunity in the semiconductor sector. While much attention is directed towards companies like Nvidia, TSMC is a critical player that contributes significantly to their success.

TSMC is the primary manufacturer of semiconductors for Nvidia and also produces chips for other major firms, including Advanced Micro Devices, Amazon Web Services, Broadcom, Qualcomm, and Sony.

The growing reliance on chips, particularly in the AI field, points to a promising future for TSMC. The company's diverse client list and expertise in semiconductor manufacturing position it well for sustained demand.

Conclusion

Deciding which cloud platform or AI solution will gain the most success over time remains a challenge. However, it is clear that major tech companies will continue to invest heavily in AI infrastructure moving forward.

Investing in Microsoft carries the inherent risk of competing specifically against giants like Amazon and Alphabet. The uncertainty surrounding its market position is a significant consideration.

In contrast, investing in TSMC aligns with a broader trend of consistent demand for semiconductors. Consequently, the decision to shift investments from Microsoft to Taiwan Semiconductor appears to be a prudent strategy.

Griffin, Microsoft, Taiwan