Famous investor Warren Buffett isn’t known to be enthusiastic about technology. The “Oracle of Omaha” has traditionally invested in simple, consumer-facing companies with strong brands. Look at the dozens of stocks held by his holding company, Berkshire Hathaway, and you won’t find many tech names.
Ironically, Apple is Berkshire’s largest holding and one of Buffett’s most successful investments. Yet, the stock has some concerns today that could explain why Buffett has steadily sold shares over the past year.
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Buffett owns another top technology stock, a smaller investment (under 1%) that hasn’t gotten as much buzz yet has resided in Berkshire’s portfolio since 2019. That would be e-commerce and cloud computing behemoth Amazon (NASDAQ: AMZN).
Here is why investors should consider buying and holding the stock for the long haul.
If you live in the United States, the odds are high you’ve ordered something from Amazon. The company built its name in e-commerce and dominates America’s online retail landscape today with an estimated market share of 40%. That’s far more than even Walmart, which ranks second at 10.6%.
Amazon’s retail business has obvious Buffett traits. It’s front and center with its customers, who shop online and see Amazon delivery vans almost daily in their neighborhoods. If you use Amazon frequently, you probably have a Prime subscription, which offers perks on shipping and access to Amazon’s complimentary services, such as Prime Video. Prime has over 200 million subscriptions and creates a sticky recurring revenue stream.
The company enjoys a wide competitive moat, and its retail business features an unmatched supply chain. This enables Amazon to offer more products at lower prices and ship them to you faster. Amazon’s retail business keeps growing, too. Consumer spending is the largest pillar of America’s economy, and e-commerce has penetrated only about 16% of total retail spending.
Part of the reason Amazon’s e-commerce business dominates is that it can afford to operate on razor-thin profit margins. Amazon’s retail business is dominant, with room to grow over the long term.
Amazon’s cloud computing platform, AWS, is the global leader in this area and contributes most of the company’s profits. Through nine months of 2024, AWS generated $29.2 billion (74%) of Amazon’s operating profit despite only representing 17% of revenue.
Enterprises have primarily shifted from on-site computer servers to cloud platforms like AWS. Most new software applications are cloud-based today, which will likely hold for artificial intelligence (AI). Industry experts estimate the global cloud services market was worth $618 billion this year but grow to over $2.7 trillion by 2034.
If AWS enjoys similar growth, Amazon’s most profitable business unit could grow four to five times its current size over the next decade. That alone justifies holding Amazon stock.
Buffett has shared numerous quotes and nuggets of wisdom over his career. One of my favorites is, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” But even Buffett isn’t perfect. He is a notorious stickler for bargains and may regret not buying more Amazon years ago. The stock has risen roughly 200% since early 2019, when Berkshire first invested.
Today, Amazon trades at a price-to-earnings ratio of 48. Meanwhile, analysts estimate the company will grow earnings by an average of 22% annually over the long term. I like using the PEG ratio to weigh a stock’s valuation against its anticipated growth. Generally, I’ll invest in top-notch companies with PEG ratios of up to 2.0 to 2.5. Amazon’s PEG ratio of 2.2 is currently flirting with that ceiling.
So, is Amazon a bargain today? No, probably not. After all, the stock has surged nearly 50% over the past year. Still, it’s arguably a fair price, and a long-term investor should see Amazon’s business grow into that valuation (and then some) over the coming years.
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $365,174!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,164!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $469,011!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of January 21, 2025
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, and Walmart. The Motley Fool has a disclosure policy.
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