Warren Buffett is known for buying stocks when they're undervalued -- and then scoring a win after the rest of the market realizes the strengths of these particular players. The billionaire investor doesn't always get in on a stock at the earliest possible point, but he does buy early enough to potentially benefit from years of growth.
This is the case with his investment in one of today's most well-known companies. Back in 2018, Buffett expressed regret that he didn't scoop up the shares sooner. His team added them to the portfolio the following year.
This stock has been a winner over time, but it still has plenty of room to run, thanks to its leadership in two high-growth industries and its focus on artificial intelligence (AI). Let's check out this Buffett stock that could go parabolic this year and beyond.
Image source: The Motley Fool.
Buffett's investing track record
So, first, a bit of background on Buffett. Why are investors so eager to follow his moves? The billionaire has proven his ability to select winning stocks over time, and that's helped him, as chairman, lead Berkshire Hathaway to a compounded annual gain of nearly 20% over 58 years. That's compared to a 10% increase for the S&P 500. Unsurprisingly, investors refer to the Nebraska native as the "Oracle of Omaha."
Buffett focuses on long-term investing -- buying a stock and holding it for a number of years to benefit from the company's growth over time. He's held certain stocks for decades, a classic example being Coca-Cola, which he bought in the late 1980s and still holds today. So, if a company doesn't offer solid prospects well into the future, it won't be on Buffett's buy list.
Now, let's consider the Buffett stock that could roar higher this year and beyond. This player is Amazon (AMZN +0.26%), a leader in e-commerce and cloud computing. As mentioned, Buffett initially passed on the stock, then said during a CNBC interview in 2018 that he "blew it" when he made that decision as he underestimated the business's potential.
Buffett and his team went on to buy Amazon in the first quarter of 2019. Since that time, the stock has climbed about 150%, showing that even if you don't buy a company at the very start of its growth story, there may still be plenty to gain in the next chapters.
NASDAQ: AMZN
Key Data Points
An investment in AI
This continues to be the situation with Amazon, a company that's built a long track record of earnings growth powered by its e-commerce and cloud businesses and continues to make moves that should spur new waves of growth. Today, the driver of this growth may be Amazon's investment in AI, which is benefiting the company across both of these key businesses.
In e-commerce, AI tools are helping Amazon better serve customers and lower costs; for example, AI helps the company determine the fastest and shortest delivery routes for packages. Another example: Amazon offers its shoppers Rufus, an AI-powered shopping assistant. If shoppers find Rufus helpful, they're more likely to keep shopping on the e-commerce platform.
Through Amazon Web Services (AWS), the company's cloud business, Amazon provides customers with a broad range of AI products and services, from chips to a fully managed service to accompany them along their development path. This array of offerings helped AWS reach a mind-boggling $115 billion revenue run rate last year, and AWS should continue to see growth in this area as we're still in the early days of the AI revolution. Analysts forecast that today's $200 billion AI market will reach more than $1 trillion by the end of the decade.
Today, Amazon shares trade for about 35 times forward earnings estimates, a reasonable level considering the company's growth story so far and prospects down the road. At this level, this Buffett stock still has plenty of room to run -- and that means it could go parabolic this year and beyond as the AI boom continues.
