Warren Buffett and tech stocks go together like… well, they don’t usually go together. The legendary investor typically avoids stocks that are out of reach for him. And technology is not his strong suit.
As expected, Buffett does not own a single share of NVIDIA (NASDAQ: NVDA). So have you missed the huge gains in artificial intelligence (AI) stocks over the past few years? Not completely.
Buffett’s direct ways to profit from Nvidia
Although Buffett does not own Nvidia shares, Berkshire HathawayThe portfolio includes two exchange-traded funds (ETFs) that do. As a result, it has benefited directly as Nvidia stock has soared.
Nvidia added to the S&P 500 in 2001, replacing the embattled 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 shares of any of the ETFs since then.
Of course, Buffett hasn’t benefited much directly from Nvidia’s gains through Berkshire’s holdings in these two S&P 500 ETFs. For one thing, 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 represent less than 0.1% of Berkshire’s total portfolio. For several years, Berkshire’s wholly owned subsidiary, New England Asset Management (NEAM), has also held positions too small to make much of an impact in both ETFs.
Furthermore, Nvidia represents only 7.25% of the S&P 500, which is weighted by market capitalization. When Berkshire first bought the two S&P 500 ETFs in late 2019, AI shares had a much lower weight than they do now.
How the “Oracle of Omaha” has indirectly benefited from Nvidia
Buffett has also indirectly benefited from Nvidia’s remarkable rise. Exactly how he has done it requires deductive analysis.
Let’s start with the fact that stocks of major cloud service providers have performed exceptionally well lately. Actions of Amazon (NASDAQ:AMZN)whose Amazon Web Services (AWS) is the leading cloud services platform, soared 81% last year and more than 20% so far this year. microsoft (NASDAQ:MSFT) The stock is up 57% in 2023 and is up nearly 20% this year. Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL)which operates Google Cloud, has seen its shares soar 58% last year and more than 25% so far in 2024.
There’s no doubt that the rise of AI, especially with the growing adoption of generative AI, has been a key factor in the performance of all three cloud stocks. It is important to note that Amazon, Microsoft and Alphabet are Nvidia’s main customers. The three companies almost certainly would not have been able to handle the growing demand for cloud services with Nvidia’s AI chips.
Therefore, I think it’s fair to say that Nvidia is partly responsible for the share price gains experienced by Amazon, Microsoft, and Alphabet. However, it’s difficult to determine how much of those gains can be attributed to Nvidia.
So how does this relate to Buffett? First, Berkshire owns 10 million shares of Amazon. Second, NEAM (the Berkshire subsidiary) has positions in Alphabet and Microsoft. Third, the three cloud stocks are also key holdings of Berkshire’s two S&P 500 Index ETFs.
You may have made money with Nvidia in 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 based on assets under management, while the Vanguard S&P 500 ETF ranks third. Even if you don’t own any of the ETFs, your investment portfolio could include one or more ETFs or mutual funds with positions in Nvidia.
Amazon, Alphabet and Microsoft are also widely owned stocks. You could own some or all of them directly or own funds with holdings in mega-cap stocks.
To be sure, these ways to make money with Nvidia are not as rewarding as owning shares of the graphics processing unit (GPU) maker. But it could at least provide some comfort to investors who have kicked themselves for not buying Nvidia sooner. It also underscores one of the advantages of investing in S&P 500 Index ETFs: Big winners like Nvidia gain increasingly higher weightings in the index as their market caps grow, and they can make more money in the process.
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Alphabet executive Suzanne Frey 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 and recommends Alphabet, Amazon, Berkshire Hathaway, Microsoft, Nvidia, and Vanguard S&P 500 ETFs. The Motley Fool 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.
Warren Buffett does not own Nvidia. Here’s How He Profited From Big Gains in Artificial Intelligence (AI) Stocks was originally published by The Motley Fool