Warren Buffett isn't best known for his growth investing, but two stocks in his portfolio have huge growth potential. When you run the numbers, it's not hard to see how these companies could be worth significantly more in the years to come.
Want to follow Buffett's highest upside bets? Keep reading.
Maximum growth at a deep discount
It's not often that Warren Buffett goes underwater on an investment. According to the latest filings, his holding company Berkshire Hathaway currently owns around 6 million shares of Snowflake (SNOW 1.38%), worth around $1 billion. Snowflake first appeared in Berkshire's stock portfolio in the second half of 2020, right as the company went public. Back then, shares traded for around $240. Today, they're closer to $140 -- a 40% loss in less than four years.
Yet Berkshire isn't selling any shares. The latest filings show no change in the company's share count. Whether Buffett made the call or one of his lieutenants did, what has allowed the company to remain in the portfolio?
At its core, Snowflake is a cloud-based data platform. Its technology is arguably one of the best solutions for a data-heavy world.
In 2023, public spending on cloud services was around $400 billion. By 2033, it is estimated to reach $2.3 trillion. All that spending is not only to store data, but to organize, analyze, and secure it. This is where Snowflake's platform shines.
According to peer company mParticle:
Snowflake is a cloud data warehouse that can store and analyze all your data records in one place. It can automatically scale up/down its compute resources to load, integrate, and analyze data. As a result, you can run virtually any number of workloads across many users at the same time without worrying about resource contention.
Put more simply, Snowflake is faster and more efficient than the competition due to how it organizes and parses huge data sets. Investing in the company is a bet not only on its technology, but also on the wave of spending that will occur for cloud-based services in the decade to come.
When shares went public in 2020, they traded at an astounding 125 times sales. As growth rates have normalized, however, that premium has come down sharply. Today, the company is growing sales by around 35% per year, with a price-to-sales (P/S) multiple of around 15. The market cap, meanwhile, hovers just below $50 billion.
Market intelligence company IDC estimates that public cloud spending will continue to grow at around 20% per year, so there could be more contraction to come. But if Snowflake is even able to match this industry growth, it would trade at just 5 times 2029 sales.
That's a long way away, but Buffett and his team aren't shy about taking long-term bets. If you're willing to stomach the high multiple and remain patient for years, Snowflake shares should eventually pay off handsomely.
SNOW PS ratio; data by YCharts. YOY = year over year.
Another high-growth Buffett stock
Nu Holdings (NU -0.18%) is another stock in Berkshire's portfolio with undeniable growth potential. The fintech bank got its start in 2013, offering banking services to residents of Latin America purely through a smartphone app.
In its first decade of operation, Nu went from essentially zero customers to around 100 million. More than half of all Brazilian adults are currently customers.
In recent years, the fintech has entered new markets like Mexico and Colombia. And while results haven't been as impressive as in Brazil, the company's first market, the fundamentals remain very strong. Customer count is growing by around 29% annually, with revenue increasing by 75% in recent quarters.
Economic trends aren't as favorable in other Latin American countries, but there's no denying the potential runway. The region as a whole has more than 650 million people. And Nu's services are widely regarded as the best on the market, with high user-retention rates and a strong history of attracting new and existing users into new products.
Its P/S of 9.3 might seem high for a bank stock, and it is. But Nu should be considered a fintech. These companies combine the fast growth of tech businesses with the massive markets of the financial industry. Over the next 12 months, analysts expect sales to grow by another 45%. As with Snowflake, the premium valuation should someday prove a bargain for patient investors.
