One of the world’s most popular investors, Warren Buffett, has built massive wealth over the last several decades by focusing on buying and holding value stocks. Earlier, the Oracle of Omaha avoided investing in technology stocks as Buffett claimed he did not understand the sector well enough.
However, over the last few years, Warren Buffett’s Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has added several tech stocks to its investment portfolio. Here, we take a look at three top tech stocks that are part of Berkshire Hatchway’s portfolio right now.
Apple Inc.
The first stock on my list is the multi-trillion-dollar company Apple Inc (NASDAQ: AAPL). Berkshire initially invested $1 billion in Apple shares back in 2016 and has continued to increase its holdings in the tech giant. By the end of 2020, Berkshire’s Apple portfolio was worth $120 billion, accounting for 5% of the hardware heavyweight’s total market cap.
Apple has in fact generated close to $90 billion in unrealized profits and accounts for more than 50% of Berkshire’s total portfolio. Despite its massive size, Apple continues to grow at a robust pace. The company increased sales by 36% year over year in the quarter ended in June while iPhone sales surged over 50%.
Apple continues to successfully diversify its revenue base. While the iPhone is still its largest business, the Services segment is firing on all cylinders. The tech giant also has multiple subscription products including Apple Care, Apple TV+, Apple Music, and Apple Arcade.
Analysts tracking the stock expect Apple sales to rise from $274 billion in fiscal 2020 to $366 billion in 2021 and $380 billion in 2022. Comparatively, its adjusted earnings per share are forecast to rise at an annual rate of 19.6% in the next five years.
Wall Street has a 12-month average price target of $166 for Apple stock which is 12% above its current trading price.
Amazon Inc.
One of the top-performing stocks on the S&P 500, Amazon (NASDAQ: AMZN) is also part of Warren Buffett’s portfolio. AMZN stock has returned 1,540% in the last 10 years and has significant upside potential given its part of several rapidly expanding addressable markets including e-commerce, cloud computing, online streaming, and digital advertising.
Amazon stock was one of the best performers amid COVID-19 as the pandemic acted as a tailwind for several of the company’s businesses. The shift towards e-commerce shopping accelerated at a fast pace as did the demand for streaming services. In fact, the number of Amazon Prime subscribers rose from 150 million to 200 million in the last year. Amazon’s ad sales growth also increased at a rapid pace in each of the last four quarters.
While the e-commerce segment rakes in the majority of its sales, Amazon Web Services is the company’s most profitable business. AWS generated $14.8 billion in revenue in Q2 while its operating profit stood at $4.2 billion, indicating a margin of 28%. Its overall operating margin was much lower at just 6.8%.
Snowflake
The final stock on this list is Snowflake (NYSE: SNOW) and Berkshire subscribed to its IPO in late 2020. Snowflake has risen 140% since its IPO which means Berkshire Hathaway holds close to $2 billion of the company’s stock. Despite its impressive returns, Snowflake is also trading 28% below record highs providing investors an opportunity to buy the dip.
Snowflake has grown its sales from $96.66 million in fiscal 2019 to $592 million in fiscal 2021 ended in January. Analysts expect sales to rise 88% year over year to $1.11 billion in 2022 by 64% to $1.83 billion in 2023. This will allow it to narrow losses from $1.56 per share in 2021 to $0.5 per share in 2022. It means that the stock is valued at a market cap of forwarding sales multiple of 70x which is still very steep.
In the first quarter of fiscal 2022, the company’s revenue was up 110% to $229 million. The number of customers also rose by 67% to 4,532 while its net retention rate was also exceptional at 168%.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
