Few money managers draw the attention of professional and everyday investors quite like Berkshire Hathaway’s (BRK.A 1.42%) (BRK.B 1.38%) Warren Buffett. Spanning the roughly six decades the Oracle of Omaha has been CEO of Berkshire, he’s overseen a cumulative gain of better than 5,385,000% in his company’s Class A shares (BRK.A).
Thanks to Form 13F filings with the Securities and Exchange Commission, riding Warren Buffett’s coattails to sizable long-term gains has been a viable investment strategy. A 13F provides investors an under-the-hood look at which stocks money managers with at least $100 million in assets under management (AUM) have been buying and selling. Buffett oversees a 44-stock, $292 billion portfolio at Berkshire Hathaway.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
Yet what might come as a surprise to investors is that Berkshire Hathaway’s quarterly-filed 13F doesn’t tell the full story of all the securities Buffett’s company is holding.
The Oracle of Omaha has a $642 million “secret” portfolio
One of the strategies Buffett has employed to grow Berkshire Hathaway over six decades -- beyond just being a long-term investor -- is to acquire businesses. Berkshire has made around five dozen acquisitions with Buffett at the helm, including insurer GEICO and railroad BNSF.
However, one transaction stands out as altering which stocks and exchange-traded funds (ETFs) Berkshire Hathaway owns.
In 1998, Berkshire Hathaway announced it would acquire reinsurance company General Re for $22 billion in an all-share deal. Though the reinsurance operations were the crown jewel of this buyout, General Re also owned a specialty investment fund known as New England Asset Management (NEAM). When Buffett’s company closed on General Re in December 1998, it became the new owner of NEAM.
New England Asset Management ended the September quarter with $642 million in AUM spread across 120 securities. Even though Buffett doesn’t oversee the investment strategy of NEAM’s portfolio in the same way he does for Berkshire Hathaway’s $292 billion portfolio, what NEAM owns is, ultimately, part of Berkshire Hathaway. Thus, New England Asset Management is Warren Buffett’s “secret” portfolio.
Because NEAM is managing $642 million in assets, it’s well past the threshold of needing to file a quarterly 13F. In other words, investors can keep a close eye on which stocks are being purchased and sold every three months for Buffett’s secret portfolio.
Similar to the Oracle of Omaha, NEAM’s advisors tend to be value oriented. With the stock market at one of its priciest valuations in history, Buffett’s hidden portfolio has been a fairly persistent seller of high-growth tech stocks of late, including some of the most-popular companies in the artificial intelligence (AI) arena, such as Nvidia and Microsoft.
However, one AI stock Buffett’s secret portfolio is selling might be one of Wall Street’s smartest buys.
Image source: Getty Images.
A mistake in the making? Buffett’s secret portfolio dumps a top-tier AI stock
According to the researchers at PwC, AI is a massive opportunity, as evidenced by their call that artificial intelligence will add $15.7 trillion to global gross domestic product come 2030. But with most AI stocks soaring, funds like NEAM have rung the register and locked in their gains.
At the midpoint of 2023, Buffett’s under-the-radar portfolio was holding 30,400 shares of Alphabet (GOOGL -0.71%) (GOOG -0.65%), the parent company of internet search engine Google, streaming service YouTube, and cloud infrastructure service platform Google Cloud, among other ventures. But after persistent selling by NEAM’s asset managers for five consecutive quarters, only 5,195 shares remain, as of the September-ended quarter. This represents a decline of 83% spanning 15 months.
Unlike Nvidia, which develops the hardware used by businesses to power their AI-accelerated data centers, Alphabet’s AI ties are usage-driven. Specifically, it’s incorporating generative AI solutions into Google Cloud to allow its customers to build and train large language models, deploy AI agents, and improve their marketing efforts.
Based on data from tech-analysis firm Canalys, Google Cloud clocked in with a 10% share of global cloud service spending during the third quarter. Since enterprise cloud spending is still in its relatively early stages of expansion, Google Cloud is expected to sustain double-digit sales growth and juicy margins.
While artificial intelligence is the future growth driver for Alphabet, its search engine continues to be its foundational cash cow. Google accounted for nearly a 90% share of worldwide internet search in December 2024, per GlobalStats, and has consistently tallied 89% to 93% of global internet search share over the last decade. Being the clear top choice for businesses wanting to target users with their message(s) should afford Alphabet substantial ad-pricing power.
Something else Alphabet has working in its favor is its cash-rich balance sheet. The company’s cash, cash equivalents, and marketable securities totaled $93.2 billion, as of Sept. 30, with Alphabet generating north of $105 billion in operating cash flow over the trailing year (also as of Sept. 30). Having a treasure chest of capital affords Alphabet the luxury of buying back its stock, paying a dividend, and aggressively investing in high-growth initiatives, such as its AI-driven cloud infrastructure service platform.
But the biggest mistake of all for Buffett’s secret portfolio may be selling the majority of its stake in Alphabet while it’s still historically cheap. Shares of Alphabet can be picked up for 21 times forecast earnings per share in 2025 and roughly 15.7 times projected cash flow. Both figures are below Alphabet’s average forward price-to-earnings ratio and price-to-cash-flow ratio over the trailing-five-year period.
In other words, Alphabet remains historically cheap and attractive while some of the most-popular AI stocks trade at premium valuations.
