Warren Buffett famously avoided tech stocks for most of his career. He cited his lack of understanding during that time. Still, attitudes have evolved at Berkshire Hathaway (BRK.A -0.01%) (BRK.B -0.09%), and early in the last decade, Buffett brought Todd Combs and Ted Weschler on to help manage that portfolio. Soon after, Buffett made a tech-industry investment in IBM in 2011, a position he reversed in 2018.
Despite that failure, Buffett did not give up on tech. Today, the stocks Warren Buffett owns make Berkshire's portfolio tech-heavy by just about any measure. These are three of his most intriguing tech picks.
1. Apple
Both Combs and Weschler may have influenced the decision to buy Apple (AAPL -0.75%). Still, besides the technology focus, Apple looks like a traditional Buffett investment. It sells products like the iPhone, Mac computers, and Apple Watch. Like banking, beverages, or insurance, its products hold the "forever" appeal that drew Buffett's attention.
And like other Buffett stocks, he bought Apple after it had become well-established, purchasing his first position in the first quarter of 2016. At that time, the iPhone, which makes up more than half of the company's revenue, had long since become a mainstream product.
Moreover, like past Buffett purchases, it was inexpensive. At that time, Buffett paid between 9 and 12 times its earnings. And he kept adding positions. Eventually, he held 895 million shares, meaning Apple makes up more than 38% of Berkshire's portfolio.
Given the growth of the stock during that time, few can fault this decision from a returns perspective. Nonetheless, for an investor who has preached diversification, the size of this position is unusual. Even those who follow Buffett might want to avoid placing such a large percentage of one's portfolio in just one stock.
2. Nu Holdings
Unlike Apple, Nu Holdings (NU -2.66%) is a smaller Buffett holding, making up about 0.1% of Berkshire's portfolio. Still, Nu holds tremendous potential. The Brazil-based bank offers a digital banking platform to people in Brazil, Mexico, and Colombia.
It is unusual in that a large percentage of its addressable market lacks a bank account or a credit card. That means these consumers need fintech services like cash cards or QR codes to make online purchases.
It also represents a departure from traditional Buffett investment principles because it was a pre-IPO investment, making it more likely a pick by Combs or Weschler.
Unlike other Buffett investments, Nu is also expensive and unprofitable. Even after a massive drop in the stock price, it sells at about a 7 price-to-sales (P/S) ratio.
Still, though it lost money in the first nine months of 2022, it managed an $8 million profit in the third quarter. Also, its Q3 revenue of $1.3 billion grew 171% compared with the year-ago quarter. Assuming growth stays rapid and it can sustain profits, Nu could become a much larger part of Buffett's portfolio.
3. Snowflake
Like Nu, Snowflake (SNOW 0.39%) was a pre-IPO investment by Berkshire. However, it could also deliver massive growth as it forges a new path in its industry.
Snowflake, which is about 0.3% of Berkshire's stock holdings, offers data cloud software, which can store, manage, and secure data on a cloud-based platform. It manages permissions and tracks changes, making it easier to control and secure and reducing the chances of data becoming inaccurate. Unlike many competing products, it works well regardless of whether Amazon's AWS, Microsoft's Azure, or another company provides its cloud infrastructure.
That could potentially give Snowflake the "forever" appeal, and the revenue growth shows it is quickly gaining traction. For the first nine months of fiscal 2023 (which ended Oct. 31), its revenue of $1.5 billion surged 77% compared with the same period in fiscal 2022.
However, other factors make it very un-Buffett-like. The $590 million lost in the first three quarters of 2023 probably displeases Buffett. Also, having a 24 P/S ratio after the stock fell 65% from its all-time high will likely not appeal to Buffett either.
Still, its 7,300 customer count at the end of fiscal Q3 grew 34% over the previous year. And since revenue amounts to less than 1% of a $248 billion total addressable market, Snowflake could crush the market in 2023 despite its considerable expense.
