Bill Gates has long been one of the richest people in the world. His company, Microsoft(NASDAQ: MSFT)made him a billionaire the year after the IPO. If he kept the 45% stake in the company he had at the time, he would be worth well over $1 trillion today.
But after nearly 25 years of successfully making Microsoft the largest company in the world by market capitalization, Gates shifted his focus to philanthropic efforts. In 1999, he and his then-wife Melinda founded the Bill & Melinda Gates Foundation, which aims to improve healthcare and reduce poverty around the world. Gates has donated much of his wealth to the foundation over the past 25 years, and he plans to donate virtually all of his assets to charity over the course of his lifetime.
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Gates isn’t the only one promising to give away his wealth. His friend Warren Buffett has joined him and he has been a major contributor to the Gates Foundation since 2006. Buffett also served as a trustee until 2021. The foundation’s trust includes an equity portfolio worth approximately $45 billion at the time of writing.
It is striking that approximately two-thirds of the portfolio is concentrated in just three stocks. Let’s take a closer look at each of them.
The company Gates founded nearly 50 years ago occupies the top spot in his foundation’s portfolio. The trust owns nearly 29 million shares of the company, worth about $12 billion. The trust sold nearly 6 million shares (about 17% of its previous holdings) in the third quarter to help fund its operations.
These sales may have been timely, as Microsoft shares hit an all-time high in July. The stock is now more than 10% below that peak, and this could represent an incredible buying opportunity for investors.
Microsoft’s cloud computing business, Azure, is benefiting from the growth in artificial intelligence spending, as well as the secular migration from on-premise to cloud computing by enterprise customers. When it comes to AI, Microsoft’s $10 billion investment in OpenAI has helped position the company to capture market share. Developers have flocked to Azure AI platforms and the number of users is growing rapidly.
Microsoft also has a strong position in the business productivity software sector. The addition of Copilot to GitHub, Office 365 and its broader software portfolio has enabled it to increase revenue for the cash cow industry.
Microsoft’s price-earnings ratio is around 31.5 at the time of writing. Although that is well above the average share in the S&P500Microsoft is worth the premium price. It is leveraging its AI investments to grow two businesses at scale. Meanwhile, it uses the significant cash flows it generates to buy back shares, increasing the value of future profits for shareholders.
As mentioned, Warren Buffett makes an annual contribution to the Gates Foundation. This year’s donation amounted to 9.9 million Berkshire Hathaway Class B(NYSE: BRK.B) shares. Buffett converts his super votes Berkshire Hathaway Class A(NYSE: BRK.A) shares of Class B stock to donate his wealth without losing control of his company.
At the end of the third quarter, the Gates Foundation had just over 22 million shares in its portfolio, which today is valued at about $10.5 billion. That number will likely drop next summer (before Buffett’s next donation), as he includes a very specific provision: The Gates Foundation must spend every cent he donates, plus an additional 5% of its net assets each year. Notably, the trust sold nearly 2.5 million shares last quarter.
Much of Berkshire Hathaway’s value is tied up in its enormous investment portfolio. In addition to a stock portfolio worth about $296 billion at the time of writing, Berkshire also held about $325 billion in cash and government bonds at the end of the third quarter. That pile of cash is growing explosively as Buffett sells several large holdings in the portfolio.
Meanwhile, Berkshire’s entire holdings make up the rest of the multibillion-dollar company. They performed well in 2024, increasing operating profit by 17% in the first nine months of the year. Combined with strong gains in the rest of the market, it’s no surprise that the stock is up about 33% so far this year.
Buffett himself seems to believe that the stock has outpaced itself. He did not buy back a single share of Berkshire Hathaway last quarter, despite being allowed to buy back shares as long as he believes the price is below intrinsic value. While Berkshire’s stock looks a bit expensive at 1.6 times current book value, it’s worth noting that its book value could grow quickly given its strong operating results and the potential investment of that $325 billion in dry powder .
Even at the current premium, the stock could be worth buying for some investors.
Waste management(NYSE: WM) was one of the first equity stakes in the Gates Foundation trust fund. Today it makes up about 16% of the portfolio. The 32 million shares are worth more than $7 billion at the time of writing.
Last quarter, Gates sold 3 million shares in Waste Management, reducing the portfolio’s holdings by 8%. It is the first time since 2007 that Gates has reduced his position in the stock.
Waste management has a dominant position in the waste management industry due to its ownership of landfills. The challenges for a newcomer trying to enter or build new landfills are virtually insurmountable, giving Waste Management a wide moat around its operations. Its scale provides higher density routes for waste and recycling collection, improving profitability versus smaller competitors.
What is important is that management has performed well. Prices are rising faster than inflation, while service costs remain low. As a result, the company is seeing growing profit margins. Meanwhile, it uses excess capital to strategically acquire smaller operators to increase its size, or acquire neighboring companies to expand its operations. The company recently acquired Stericycle, a specialist in medical waste.
The stock currently trades at an enterprise value/EBITDA (earnings before interest, taxes, depreciation, and amortization) of over 17. That’s a multiple it hasn’t seen since the inception of the Gates Foundation, aside from a brief period in the late years. 2021. Over the past five years, the stock has traded closer to a 15 multiple on average.
That said, management has the opportunity to unlock a lot of value with the Stericycle acquisition and additional acquisitions in the future. What may look expensive today may turn out to be a good value.
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Adam Levy holds positions at Microsoft. The Motley Fool holds positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends Waste Management and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Billionaire Bill Gates has invested 66% of his foundation’s $45 billion portfolio in three phenomenal stocks, originally published by The Motley Fool
