Warren Buffett has served as the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) since 1965. He and his team manage a portfolio of publicly traded stocks and securities worth $318 billion, in addition to $277 billion in cash and numerous private wholly owned subsidiaries.

Berkshire stock has delivered a compound annual return of 19.8% under Buffett’s leadership, which could have turned an investment of $1,000 into more than $42 million over his 59-year tenure. That’s why Wall Street closely watches his every move.

During the second quarter of 2024, Berkshire went on a selling spree, cutting its $160 billion stake in Apple in half and trimming a number of other positions, including Chevron, T-Mobile, and Capital One Financial, to name just a few.

Berkshire also sold its entire $800 million position in data specialist Snowflake (NYSE: SNOW), which it had held since 2020. But there is one stock Buffett clearly still loves.

Snowflake wasn’t a great fit for Berkshire’s portfolio

Berkshire’s sales of Apple, Chevron, and T-Mobile might reflect Buffett‘s cautious view on the broader stock market overall. The S&P 500 index currently trades at a price-to-earnings (P/E) ratio of 27.8, which is a 53% premium to its long-term average P/E of 18.1 going back to the 1950s. Prudent portfolio management can involve taking money off the table when the market looks expensive.

However, I think Berkshire might have sold Snowflake stock for a different reason. Despite its growing portfolio of AI products and services, the cloud computing company is experiencing a deceleration in its revenue growth and blowout losses at the bottom line. Buffett often invests in companies for their robust profitability, because it allows them to maintain shareholder-friendly programs like stock buybacks and dividend schemes for the long term, which help compound his gains. Snowflake simply doesn’t fit the bill.

Berkshire bought Snowflake stock ahead of its IPO in 2020, so we don’t know exactly what price it paid. However, it floated at $120 per share, which is roughly where it’s trading today, so Snowflake basically hasn’t delivered any gains in its four-year period as a public company, despite the S&P 500 setting multiple record highs over that stretch.

Snowflake’s Data Cloud helps large organizations aggregate their valuable information in one place so they can analyze it to extract valuable insights. The company could do well in the AI race, because its new Cortex platform allows businesses to combine their data with ready-made large language models (LLMs) to build powerful AI software.

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Cortex also comes with several pre-built AI tools to further enhance the Data Cloud. Document AI, for example, allows businesses to extract information from unstructured sources like contracts and invoices. In the past, human workers would have to read through those documents and manually transfer the data into a usable format, so Document AI could save the user an incredible amount of time.

I don’t think Snowflake stock is destined for an upside surge in the near term (and apparently neither does Buffett), but it’s a stock to watch as the AI industry expands.

Buffett continues to plow money into his favorite stock

You won’t find Buffett’s favorite stock in Berkshire’s quarterly 13F filings, because that stock is…Berkshire Hathaway! Despite his cautious approach to the broader market, Buffett continued to authorize stock buybacks during the second quarter of 2024, deploying $345 million into Berkshire shares.

Why do I call it his favorite stock? Besides the fact he has been at the helm of Berkshire Hathaway for 59 years, Buffett has authorized the repurchase of $77.8 billion worth of its shares since 2018, which is twice the amount he spent buying Apple! In other words, you could argue he often sees more value in his own company than any other across the entire market.

Buybacks are Buffett’s preferred way to return money to shareholders. Berkshire can continue repurchasing stock at management’s discretion as long as its cash, equivalents, and holdings in U.S. Treasury bills remain above $30 billion. Since the conglomerate is sitting on a whopping $277 billion in liquidity right now, the buybacks probably won’t stop anytime soon.

There is one caveat. Berkshire stock currently trades at a price-to-sales ratio of 2.5, which is 26% higher than its 10-year average of 1.98. That means it isn’t cheap, which probably explains why Buffett only authorized $345 million worth of buybacks in the second quarter — the smallest amount Berkshire spent acquiring its own shares in any quarter since it resumed buybacks in 2018.

What should investors do from here?

Snowflake is one of many AI stocks, and its issues aren’t necessarily typical of the others. Nvidia, for example, is experiencing triple-digit growth in its revenue and earnings, and its stock is trading near a record high. Simply put, Berkshire’s sale of Snowflake isn’t a sign investors should avoid the rest of the sector.

But the S&P 500 is undeniably expensive right now. That doesn’t mean it has to fall — Buffett himself will tell you he has no idea what the market will do tomorrow, or even a year from now. He’s a long-term investor who buys quality companies and lets time do the hard work.

He does have a duty to Berkshire’s shareholders, though, which means he is obligated to make decisions that he thinks will deliver the most value. That occasionally involves selling large volumes of stock, as Berkshire has done this year.

Buffett often recommends that regular investors buy exchange-traded funds (ETFs), which directly track the performance of indexes like the S&P 500. Even though the market looks expensive today, its current price will probably look cheap when we reflect on this moment 10 years from now. Therefore, consistently adding to an ETF each month can yield powerful results over time.

Berkshire holds positions in the Vanguard S&P 500 ETF and the SPDR S&P 500 ETF Trust, both of which are great options for investors.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Chevron, Nvidia, Snowflake, and Vanguard S&P 500 ETF. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

Warren Buffett Recently Sold $800 Million Worth of This Artificial Intelligence (AI) Stock, While Buying Another $345 Million Worth of His Favorite Stock was originally published by The Motley Fool