Warren Buffett has steered Berkshire Hathaway to mind-blowing returns across his tenure as chief executive officer, but he's better known as a value investor than as a high-flying growth-stock enthusiast. On the other hand, the Oracle of Omaha has added some intriguing, forward-looking technology plays to his company's portfolio in recent years.
Given the famously successful investor's focus on backing high-quality companies and penchant for identifying long-term market opportunities, the Berkshire portfolio could actually be a great starting place for growth-focused investors. With that in mind, read on for a look at two category-leading tech stocks held by Buffett's company that trade at big discounts.
Amazon is arguably the best company at delivering growth
Parkev Tatevosian: Amazon (AMZN 3.43%). People sometimes forget that Amazon is one of Buffett's holdings. Despite Amazon's rally in 2023, the stock is still down 29% off its high in recent years. The company's long-term growth prospects and recovering profitability make it an excellent candidate for most investors' portfolios.
In the past decade, Amazon has increased its sales from $74.4 billion to $513.9 billion. Very few companies worldwide generate more than $400 billion per year, and Amazon has increased its annual revenue by more than that in the past 10 years. Although Amazon is unlikely to grow at that pace over the next decade, it is reasonable to expect it to continue adding to its revenue total. The company continues making shopping convenient by adding more items, delivering to your doorstep, and offering best-in-class customer service.
That growth in the top line has boosted Amazon's profitability as well. Its operating income has jumped over a decade from $745 million to $12.2 billion. Profit hit a snag last year after the company overinvested in capacity to serve surging customer demand during the pandemic lockdowns. However, Amazon is efficiently reconfiguring the business as economies have reopened.
Data source: YCharts
While Amazon's stock is not cheap, even after falling 29% off its high, factoring in the company's growth prospects makes the stock an excellent value. In fact, if you consider Amazon's PEG ratio, which factors in its growth expectations, the stock is cheap at 0.816.
A big opportunity in the age of Big Data
Keith Noonan: Snowflake (SNOW 3.69%). Berkshire Hathaway bought stock when the data-software company had its initial public offering (IPO) in September 2020. It's the only stock that Berkshire has bought at its public debut since Buffett took over as CEO in 1965. Even more striking, a Buffett-led company hadn't purchased stock at its IPO since Ford Motor Company went public all the way back in 1956.
What makes Snowflake such a standout? Like Amazon, Snowflake looks poised to play a key role in facilitating the artificial intelligence (AI) revolution and is likely to reap benefits from the evolution of incredible new technologies in the category. The software specialist's core platform makes it possible to combine and analyze information from otherwise siloed cloud infrastructure services -- opening the door for AI models to incorporate a much wider range of relevant data.
As it stands, AI-related services account for a relatively small portion of its overall business, but the rising tech trend is likely to become a much bigger performance driver over the long term. Crucially, Snowflake has already been delivering robust sales growth thanks to demand for Big Data analytics and increasing adoption and scaling for cloud-based services.
Even with some expansion slowdown as customers have turned cautious about the macroeconomic backdrop, Snowflake managed to increase product revenue 37% year over year to $640.2 million in the second quarter. Margins also continued to widen, helping push non-GAAP (adjusted and not compliant with generally accepted accounting principles) free cash flow (FCF) up 50% year over year to reach $88 million.
For the full-year period, Snowflake is estimating an adjusted free cash flow margin of 26% and for product revenue to increase 34% annually to $2.6 billion. Five years down the road, it expects product revenue of $10 billion and an adjusted FCF margin of 30%. Its long-term growth story could still be just getting started.
With the stock down about 63% from its high, Snowflake looks like a worthwhile buy for long-term investors seeking potentially explosive technology plays.
