Warren Buffett has been the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) since 1965. He and his team manage a portfolio of $277 billion in equity, plus $318 billion worth of publicly traded stocks and securities. cash and a number of privately held wholly owned subsidiaries.
Under Buffett’s leadership, Berkshire stock has delivered a compound annual return of 19.8%, meaning a $1,000 investment could have grown to more than $42 million during his 59-year tenure. That’s why Wall Street is watching his every move closely.
In the second quarter of 2024, Berkshire went on a sell-off, cutting its $160 billion worth of Apple stock in half and eliminating many other positions, including Chevron, T-Mobile, and Capital One Financial, to name a few. .
Berkshire also sold its entire $800 million position in data specialist Snowflake (NYSE:SNOW) since 2020. But there’s one stock that Buffett clearly still loves.
Image source: Motley Fool.
Snowflake didn’t fit well into Berkshire’s portfolio.
Berkshire’s sales of Apple, Chevron and T-Mobile may reflect Buffett’s cautious view of the stock market as a whole. The S&P 500 index currently trades at a price-to-earnings ratio (P/E) of 27.8. This represents a 53% premium to the long-term average P/E ratio of 18.1 dating back to the 1950s. Smart portfolio management may include taking money off the table when the market looks expensive.
However, I think Berkshire may have sold its Snowflake stock for other reasons. Despite its expanding portfolio of AI products and services, the cloud computing company has experienced slowing revenue growth and significant losses to its bottom line. Buffett often invests in companies looking for solid profitability, which increases Buffett’s profits because companies can maintain shareholder-friendly programs such as stock buybacks and dividend plans over the long term. Body. Snowflake is not the case at all.
Berkshire bought Snowflake stock ahead of its 2020 IPO, so we don’t know exactly what its price will be. However, the stock remains at $120 per share, about the same as it trades today, even though the S&P 500 has set multiple all-time highs in its four years as a public company. Snowflake is basically not making a profit.
Snowflake’s Data Cloud helps large organizations aggregate valuable information in one place and analyze it to extract valuable insights. The new Cortex platform allows companies to combine data with off-the-shelf large-scale language models (LLMs) to build powerful AI software, which could help the company do well in the AI race.
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Cortex also comes with several pre-built AI tools to further enhance your data cloud. For example, Document AI allows businesses to extract information from unstructured sources such as contracts and invoices. Previously, human workers had to read these documents and manually transfer the data into a usable format, but Document AI saves users an incredible amount of time.
While I don’t think Snowflake stock is destined for a quick rally in the short term (and apparently Buffett doesn’t either), it’s a stock to watch as the AI industry expands.
Buffett continues to pour money into his favorite stocks
Buffett’s favorite stocks are not found in Berkshire’s quarterly 13F report. Because that stock is… Berkshire Hathaway. Despite his cautious approach to the overall market, Buffett continued to approve stock buybacks during the second quarter of 2024, investing $345 million in Berkshire stock.
Why call it his favorite stock? In addition to his 59 years at the helm of Berkshire Hathaway, Buffett has authorized $77.8 billion worth of stock buybacks since 2018, twice the amount he spent on buying Apple. do. In other words, he sees more value in his company than in other companies in the overall market.
Stock buybacks are Buffett’s preferred method of returning money to shareholders. Berkshire can continue to buy back stock at management’s discretion as long as its holdings in cash, equivalents and Treasury bills exceed $30 billion. The conglomerate currently has a massive $277 billion in liquidity, so the buybacks probably won’t stop anytime soon.
There is one caveat. Berkshire stock currently trades at a price-to-sales ratio of 2.5x, 26% above the 10-year average of 1.98x. This means the stock isn’t cheap, which is probably why Buffett only authorized $345 million worth of stock buybacks in the second quarter, and why Berkshire’s share buybacks in 2018 This is the lowest amount spent on stock buybacks in any quarter since the company resumed buying.
BRK.A PS ratio chart
What should investors do from here?
Snowflake is one of many AI stocks, and its problems aren’t necessarily typical of other stocks. For example, NVIDIA is experiencing triple-digit sales and profit growth, and its stock is trading near all-time highs. Simply put, Berkshire’s sale of Snowflake is not a sign that investors should avoid other sectors.
However, there is no doubt that the S&P 500 is currently overvalued. That doesn’t mean it has to go down. Buffett himself will say that he has no idea what the market will do tomorrow or in a year. He is a long-term investor who buys quality companies and takes his time to do the hard work.
But he has an obligation to Berkshire’s shareholders, which means he has an obligation to make decisions that he believes will provide the most value. That sometimes involves selling large amounts of stock, as Berkshire did this year.
Buffett often recommends that retail investors buy exchange-traded funds (ETFs) that directly track the performance of indexes such as the S&P 500. Even if the market looks expensive today, when you look back at this moment in 10 years, current prices will probably look cheap. from now. Therefore, consistently adding to the ETF each month can yield strong results over time.
Berkshire holds positions in the Vanguard S&P 500 ETF and SPDR S&P 500 ETF Trust, both of which are great choices for investors.
Should you invest $1,000 in Snowflake right now?
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Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Chevron, Nvidia, Snowflake, and Vanguard S&P 500 ETFs. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
Warren Buffett recently sold $800 million worth of this artificial intelligence (AI) stock and bought another $345 million worth of his favorite stocks.