Warren Buffett and tech stocks go together, like… well, they don’t usually go together. The legendary investor typically avoids stocks that are outside his wheelhouse. And technology is not his strong point.
It’s not surprising that Buffett doesn’t own a single stock Nvidia (NASDAQ: NVDA). Did he miss the huge gains in artificial intelligence (AI) stocks in recent years? Not quite.
Buffett’s immediate ways to profit from Nvidia
Although Buffett does not own Nvidia stock, Berkshire HathawayThe company’s portfolio includes two exchange-traded funds (ETFs) that do. As a result, he has directly benefited from the massive rise in Nvidia stock.
Nvidia has been added to the S&P500 in 2001, replacing the beleaguered energy company Enron. In the fourth quarter of 2019, Berkshire initiated positions in two S&P 500 index ETFs – the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard S&P 500 ETF (NYSEMKT: VOO). The conglomerate has not sold any shares of either ETF since then.
Granted, Buffett didn’t directly benefit much from Nvidia’s gains through Berkshire’s shares in these two S&P 500 index ETFs. For starters, Berkshire owns only small positions in the funds: 39,400 shares of the SPDR ETF and 43,000 shares of the Vanguard ETF. These holdings comprise less than 0.1% of Berkshire’s total portfolio. Berkshire’s wholly owned subsidiary, New England Asset Management (NEAM), has also held positions for years that are too small to move much in either ETF.
Furthermore, Nvidia makes up only 7.25% of the S&P 500, which is weighted by market cap. When Berkshire first bought the two S&P 500 ETFs in late 2019, AI stock had a much smaller weight than it does today.
How the “Oracle of Omaha” indirectly benefited from Nvidia
Buffett has also indirectly benefited from Nvidia’s remarkable rise. How exactly he did that requires some deductive analysis.
Let’s start with the fact that the stocks of the leading cloud service providers have performed exceptionally well lately. Shares of Amazon (NASDAQ: AMZN)of which Amazon Web Services (AWS) is the top cloud services platform, up 81% last year and over 20% year to date. Microsoft (NASDAQ: MSFT) Shares are up 57% in 2023 and are up nearly 20% this year. Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)which operates Google Cloud, has seen its shares rise 58% last year and more than 25% so far in 2024.
There’s no doubt that the rise of AI, especially with the increasing adoption of generative AI, has been a key factor in the performance of all three cloud stocks. Importantly, Amazon, Microsoft and Alphabet are major customers of Nvidia. The three companies would almost certainly not have been able to handle the increased demand for cloud services with Nvidia’s AI chips.
I think it’s fair to say that Nvidia is partly responsible for the stock market gains of Amazon, Microsoft and Alphabet. However, how much of these gains can be attributed to Nvidia is difficult to determine.
How does this compare to Buffett? First, Berkshire owns 10 million shares of Amazon. Second, NEAM (Berkshire’s subsidiary) owns positions in Alphabet and Microsoft. Third, all three cloud stocks are also key investments in Berkshire’s two S&P 500 index ETFs.
Maybe you made money from Nvidia the same way
It’s possible (and maybe even likely) that you’re in the same position as Buffett: profiting from Nvidia without owning the stock. The SPDR S&P 500 ETF Trust is the largest ETF by assets under management, while the Vanguard S&P 500 ETF is third. Even if you don’t own either ETF, your investment portfolio may include one or more other ETFs or mutual funds with positions in Nvidia.
Amazon, Alphabet and Microsoft also hold major shares. You can own some or all of the shares directly, or you can own funds with interests in the mega-cap stocks yourself.
To be fair, these ways to make money with Nvidia aren’t nearly as rewarding as owning stock in the GPU (Graphics Processing Unit) maker. But it could at least provide some comfort to investors who have been kidding themselves for not buying Nvidia sooner. It also underlines one of the benefits of investing in S&P 500 index ETFs: Big winners like Nvidia gain higher and higher weightings in the index as their market capitalization grows – and can make you more money in the process.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Alphabet, Amazon, Berkshire Hathaway, Microsoft and Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Microsoft, Nvidia and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Warren Buffett does not own Nvidia. Here’s How He’s Taking Advantage of Artificial Intelligence (AI) Stock’s Big Wins was originally published by The Motley Fool
