Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett's simple strategy of investing in great businesses trading at attractive valuations and holding them for the long run goes a long way toward explaining how his company has delivered solid returns to investors over the years.
A $10,000 investment made in the Class A shares of Berkshire a decade ago is now worth $33,870. A similar investment in the S&P 500 index 10 years ago is now worth $27,810. That consistent performance goes some ways toward explaining why investors looking to build long-term wealth would do well to take a closer look at Buffett's portfolio for investment ideas.
Of course, everyone's investment journey is different and blindly copying someone's investment moves is likely to end in disappointing returns. However, knowing the reasoning behind Buffett's stock choices could help you make better choices for your portfolio. Let's take a closer look at the prospects of Amazon (AMZN 0.97%) and Snowflake (SNOW 0.39%), as these two Buffett stocks seem to have a bright future. You might just decide these two tech stocks are right for you too.
1. Amazon
Berkshire owns around $1.8 billion worth of Amazon stock. The e-commerce, cloud computing, and digital advertising giant has turned out to be a terrific investment for Buffett's company. Share prices of Amazon are up an impressive 76% in the past year.
A closer look at the company's growth drivers tells us that it is worth buying and holding for the long haul. Amazon stock trades at just 3.2 times sales despite its red-hot rally in the past year, which is a discount to the Nasdaq-100 Technology Sector index's price-to-sales ratio of 7.3 (using the index as a proxy for large tech stocks). Additionally, Amazon's forward earnings multiple of 41 is lower than the company's five-year average forward earnings multiple of 57.
Analysts expect Amazon's earnings to increase at an annual rate of 15% over the next five years. That would be a nice jump over the 10% annual bottom-line growth Amazon delivered in the past five years. However, don't be surprised to see Amazon clocking faster growth thanks to a range of catalysts like artificial intelligence (AI), digital advertising, and the secular growth opportunity within the e-commerce market.
For example, the company's Amazon Web Services (AWS) business generated annual revenue of almost $91 billion in 2023, growing 13%. AWS is the world's largest cloud infrastructure service provider with an estimated share of 31%, according to Synergy Research Group. This puts the company in a nice position to capitalize on the adoption of AI in the cloud.
Fortune Business Insights expects the cloud AI market to generate annual revenue of almost $400 billion in 2030, as compared to $60 billion last year, clocking a compound annual growth rate (CAGR) of nearly 31%. Amazon management pointed out on the company's February earnings conference call that it saw increased customer interest in developing generative AI applications on AWS.
Management said Amazon is "building dozens of Gen AI apps across Amazon's businesses, several of which have launched, and others of which are in development." So if Amazon manages to hold on to its share of the cloud computing market in the long run, adoption of AI in the cloud could supercharge its AWS revenue.
Similarly, the company's Rufus generative AI shopping assistant could give its e-commerce business a boost as well, as it has been designed to help improve the shopping experience of customers and improve product discovery.
In all, it is not surprising to see why Amazon's earnings are predicted to increase nicely over the next three years from last year's level of $2.90 per share.
AMZN EPS Estimates for Current Fiscal Year data by YCharts
More importantly, long-term catalysts such as AI in the cloud could help Amazon sustain this terrific growth for a much longer period, which is why investors should consider buying this Buffett stock before it heads higher.
2. Snowflake
Berkshire owns $989 million worth of Snowflake stock, and the good news is that you can buy this cloud company at a relatively attractive valuation following its recent plunge. Snowflake is down 19% in 2024 after the company's guidance for fiscal 2025 turned out to be below expectations.
Snowflake finished fiscal 2024 (which ended on Jan. 31) with a 38% increase in product revenue to $2.67 billion. However, the company's fiscal 2025 product revenue guidance of $3.25 billion points toward a year-over-year increase of just 22%. This marked deceleration in Snowflake's growth helps explain why investors pressed the panic button after its latest results.
However, Snowflake's cloud-based data platform, which allows customers to not only store their data securely but also use the data to build applications and derive insights from that data, remains in robust demand from a long-term perspective. That's evident from the impressive 41% increase in Snowflake's remaining performance obligations (RPO) last quarter to $5.2 billion, a metric that represents the total value of a company's future contractual obligations that are yet to be fulfilled.
So, even though Snowflake has issued cautious revenue guidance for the current fiscal year to account for a possible pullback by customers in near-term spending, its sizable RPO indicates that it could end the year with a stronger top line. It is also worth noting that Snowflake exited the quarter with a solid net revenue retention rate of 131%. A reading of more than 100% in this metric means that Snowflake's existing customers increased their spending on its offerings.
Moreover, Snowflake has been integrating AI tools into its data cloud platform and has set its sights on the lucrative AI-as-a-service market. This could unlock another growth opportunity for Snowflake and help the stock regain its mojo in the long run. Additionally, this cloud stock is now trading at 18 times sales, down substantially from the price-to-sales ratio of almost 25 at the end of 2023.
All this means investors can get their hands on a fast-growing company at a relatively lower valuation. That looks like a smart thing to do, considering Buffett's investing philosophy, as Snowflake's solid revenue pipeline and the lucrative market that it is serving point toward a bright future.
