24/7 Insights:

• Warren Buffett’s Berkshire Hathaway stock holdings have a market value of $370.8 billion dollars.
• Amazon (NASDAQ: AMZN): BRK holds 10,000,000 shares of the stock.
• Analysts remain very bullish on the company, with a price target implying 18% upside from current levels.

Of the so-called “magnificent 7” stocks in Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) portfolio, Amazon (NASDAQ:AMZN) could be among Warren Buffett’s most notable purchases over the past five years. In 2019, the Oracle of Omaha began building his position in the e-commerce and cloud giant, adding to his position over the years. According to CNBC’s Berkshire Hathaway Portfolio Tracker, the investing conglomerate now owns 10 million shares of AMZN stock, good for a 0.5% position in Berkshire’s publicly-traded portfolio. The numbers discussed in this article are derived mainly from this tracker, as well as our own proprietary list of analyst ratings for Amazon, relative to its current stock price. 

Why It Matters

Warren Buffett is one of the greatest investors of all time, and investors spend a great deal of time dissecting his portfolio. Within his portfolio, certain stocks have a greater margin of safety than others, depending on how one wishes to value such securities. Using the consensus price target for Amazon stock, and where it trends, we’re going to try to uncover whether Buffett’s Amazon stake is likely to remain steady, grow, or be trimmed over time.

What Will Buffett Do With His Amazon Stake?

Warren Buffett has taken varying approaches to certain stocks within his portfolio. Purchases he’s made of companies in part or in whole tend to be long-term positions. Indeed, Buffett doesn’t typically trade, or stay in stocks for less than a year, unless something drastically changes. His investing lieutenants Todd Combs and Todd Weschler have made some investments that Berkshire has exited quickly in the past. But judging by the fact that Amazon remains a relatively significant piece of the pie (anything above 0.5% may be considered somewhat material to the portfolio), it appears Buffett intends to hold (and potentially grow) his stake over time. 

Amazon’s fundamentals remain solid. And while this is a company many may view as a growth stock over a value play, it’s also true that Amazon’s multiples are historically low. That’s likely due to the fact that the e-commerce giant’s growth rate has slowed in recent years, and it has grown to enormous size. But it’s also a testament to Buffett’s willingness to pay a fair price for an excellent company, than an excellent price for a fair company.

Will Amazon’s Price Target Prove Too Conservative? 

Analysts appear to be right on the money when it comes to Amazon’s growth potential. This past quarter, Amazon brought in free cash flow growth of more than $50 billion in Q1, up from an outflow of $3.3 billion for 2023. This surge was tied to operating cash flow of nearly $100 billion, which doubled year-over-year and was the beneficiary of strong AWS growth (17% growth in this segment far outpaced the company’s North America and International segment growth rates of 12% and 10%, respectively).

Increasingly, Amazon is being viewed more as a cloud play, with a greater percentage of the company’s profits originating from this business segment. I think that’s likely to remain the case, with the company focused on improving these metrics by integrating artificial intelligence into its processes, improving productivity across all segments.

So long as Amazon’s bottom line continues to grow at the pace it has (around 13% this past quarter on a year-over-year basis), the company’s price-earnings ratio around 30-times (for the trailing twelve months) will likely appear cheap in hindsight. 

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