Warren Buffett does not own Nvidia. Here’s How He Profited From Artificial Intelligence (AI) Stocks’ Big Gains Anyway

Warren Buffett and technology stocks go together like…well, they don’t usually go together. The legendary investor typically avoids stocks that are out of his reach. And technology is not his strong point.

Unsurprisingly, Buffett doesn’t own a single share Nvidia (NASDAQ: NVDA). So has it missed out on the huge gains in artificial intelligence (AI) stocks in recent years? Not entirely.

Buffett’s direct ways to profit from Nvidia

Although Buffett does not own Nvidia shares, Berkshire HathawayThe company’s portfolio includes two exchange-traded funds (ETFs) it makes. As a result, he directly profited from Nvidia’s soaring shares.

Nvidia has been added to S&P 500 in 2001, replacing 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 S&P 500 Vanguard ETF (NYSEMKT: FLIGHT). The conglomerate has not sold shares of any ETF since then.

It’s true that Buffett didn’t profit much directly from Nvidia’s gains through Berkshire’s holdings in these two S&P 500 index ETFs. For one, Berkshire only has 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), also held positions too small to move the needle much on either ETF.

Additionally, Nvidia makes up just 7.25% of the S&P 500, which is weighted based on market cap. When Berkshire first purchased the two S&P 500 ETFs in late 2019, AI shares were much less heavily weighted than they are now.

How the “Oracle of Omaha” indirectly profited from Nvidia

Buffett also indirectly profited from Nvidia’s remarkable rise. Exactly how he did this requires some deductive analysis.

Let’s start with the fact that shares of major cloud service providers have performed exceptionally well recently. Actions of Amazon (NASDAQ:AMZN)whose Amazon Web Services (AWS) is the leading cloud services platform, soared 81% last year and more than 20% year-to-date. Microsoft (NASDAQ:MSFT) shares jumped 57% in 2023 and are up nearly 20% this year. Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL)which operates Google Cloud, saw its shares soar 58% last year and more than 25% so far in 2024.

There is no doubt that the boom in AI, especially with the increasing adoption of Generative AI, has been a key factor in the performance of all three cloud stocks. It is important to highlight that Amazon, Microsoft and Alphabet are Nvidia’s main customers. It’s almost certain that the three companies would not have been able to handle the increased demand for cloud services with Nvidia’s AI chips.

The story continues

I think it’s fair to say, therefore, that Nvidia is partly responsible for the share price gains experienced by Amazon, Microsoft and Alphabet. However, it is difficult to determine how much of these gains can be attributed to Nvidia.

So how does this relate to Buffett? First, Berkshire owns 10 million shares of Amazon. Secondly, NEAM (a subsidiary of Berkshire) holds positions in Alphabet and Microsoft. Third, all three cloud stocks are also top holdings of Berkshire’s two S&P 500 index ETFs.

You may have made money with 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 shares. 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 ETFs, your investment portfolio may include one or more other ETFs or mutual funds with positions in Nvidia.

Amazon, Alphabet and Microsoft are also widely owned stocks. You can directly own some or all of them or own funds with holdings in megacap stocks.

To be sure, these ways to make money with Nvidia aren’t as rewarding as owning shares of the graphics processing unit (GPU) maker. But it could at least provide some solace to investors who have been kicking themselves for not buying Nvidia sooner. It also highlights one of the advantages of investing in S&P 500 Index ETFs: Big winners like Nvidia gain increasingly higher weights in the index as their market capitalizations increase – and can generate more money in the process.

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Suzanne Frey, an Alphabet executive, 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 has 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 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 Artificial Intelligence (AI) Stocks’ Big Gains Anyway was originally published by The Motley Fool