Ideas about the Warren Buffett portfolio continue to evolve. Buffett abandoned his longtime disdain for tech by making Apple more than 40% of his portfolio. Moreover, a new generation of portfolio managers, referred to as his "lieutenants," now influence the selections of Berkshire Hathaway. They might have been behind the decision to buy pricier, non-dividend stocks like Amazon and Snowflake.
Nonetheless, should more tech stocks turn into Warren Buffett investments, several choices could not only fit his philosophy but also deliver significant returns over time. Meta Platforms (META +2.63%), Nvidia (NVDA +0.99%), and Alphabet (GOOGL +0.37%) (GOOG +0.53%) are three examples.
1. Meta Platforms
Meta might not seem like a Buffett pick at first glance. CEO Mark Zuckerberg has gone all-in on the metaverse, changing the company's name from Facebook and devoting considerable amounts of capital to Reality Labs, consequential moves that may or may not drive meaningful returns. Moreover, after years of double-digit revenue increases, it grew by only 3% in the first half of 2022.
However, for all of the focus on the metaverse, Meta remains a dominant social media stock. Industry leadership and its claim of 3.7 billion monthly active users demonstrate the kind of competitive moat that could interest Buffett.
NASDAQ: META
Key Data Points
Buffett also likes to see strong cash flows, something Meta knows how to produce. The company generated $13 billion in free cash flow in the first half of the year. That would have been even higher had spending on property and equipment not increased by 45%.
And Buffett likes to buy such cash flow streams at a bargain. The company's price-to-earnings (P/E) ratio now stands at 14. This is less than mega-caps such as Buffett's beloved Apple (at a 26 P/E) or Microsoft (a 27 P/E). This means investors like him can buy social media dominance and a considerable stream of free cash at an attractive valuation.
2. Nvidia
Buffett might also like a company that helps in the metaverse, Nvidia. The chip producer has experienced a slowdown amid a cooling economy, and investors sold the stock as revenue growth slowed and rising costs reduced net income.
The gaming and graphics capabilities of its GPUs play a crucial role in numerous tech innovations such as artificial intelligence (AI), virtual reality, the Internet of Things, and data centers. Nvidia dominates many niches and claims about 80% of the discrete GPU market, according to Jon Peddie Research. Between the need for its technology and its leading position, Nvidia benefits from a wide competitive moat.
NASDAQ: NVDA
Key Data Points
Free cash flow has suffered amid the slowdown. It generated $2.2 billion in free cash flow for the first half of the fiscal year, which ended July 31. This was down from over $4 billion in the same period last year.
Also, its P/E ratio of 46 is a little un-Buffett-like, especially since rival AMD trades at a 35 P/E. Still, considering that Amazon sells for over 115 times its earnings, Nvidia could still attract Buffett's attention.
3. Alphabet
Alphabet might be the best FAANG stock to own for Buffett and tech investors in general. Its dominance in search and other online business helped build its advertising revenue. Moreover, it continues to strengthen its dominance by improving AI and machine-learning capabilities.
It has applied this success to numerous businesses over the years. The most prominent of these is Google Cloud, which has also applied the company's AI and machine-learning tools. Such innovation has helped Alphabet become the largest cloud provider behind Amazon and Microsoft, according to Synergy Research.
NASDAQ: GOOG
Key Data Points
Even during a time when tech has struggled, the company has generated about $28 billion in free cash flow in the first half of the year. This was a slight drop from the same period in 2021 when free cash flow came in at around $30 billion.
Still, this figure would have grown if not for a 46% increase in property and equipment spending. And with about $125 billion in liquidity, it has built one of the soundest balance sheets among public companies.
Lastly, Buffett could buy this stream of cash flow at a 21 P/E, a level closely approximating the S&P 500 average of 20 times earnings. That makes Alphabet a compelling value considering its ability to generate massive amounts of free cash from its powerful ad and cloud-driven applications.
