Ahead of its initial public offering (IPO), Warren Buffett and Berkshire Hathaway invested in tech-cloud company Snowflake. Buffett has largely avoided tech companies for many years, investing heavily in banks. That trend is starting to change, and it might benefit Bitcoin (BTC) in the long term.
Why has Buffett mostly avoided tech and is the trend shifting?
Buffett has steered away from tech due to his core philosophy of value investing. Buffett likes to evaluate businesses based on cash flow, competitive advantage, and overall stability. He previously said:
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”
Many fast-growing tech companies lack stable cash flow and a predictable rate of growth over the long term. The landscape of the tech market largely does not complement Berkshire’s investment strategy and portfolio.
But in recent years, Buffett has started to invest in the tech market. Berkshire holds $117 billion worth of Apple stock and $1.7 billion of Amazon stock. Both firms are largely profitable and are dominant in their respective markets.
Top holdings in Berkshire Hathaway’s portfolio. Source: CNBC
Most recently, Buffett has made an unprecedented move. Berkshire invested in a tech cloud company called Snowflake ahead of its IPO. Buffett historically stayed out of both tech and IPO markets, and the Snowflake deal suggests a shifting trend.
Berkshire’s Snowflake deal does not carry a direct comparison with Bitcoin or cryptocurrencies. But it shows that Buffett has started to consider the digitization of many major industries.
In June, J Stern & Co chief investment officer Christopher Rossbach said Berkshire has to adapt to the present. He said that Berkshire would have to focus on companies that would generate substantial value in the next 25 years. He said:
“If Berkshire is to have the prospects of generating the value it has in the past, it has to adapt by buying these companies that will generate significant value over the next 25 years.”
Recent deals of Berkshire, like its investment in Barrick Gold and Snowflake, show the firm is positioning for long-term growth.
Bitcoin could be the frontrunner of financial digitization
Over time, widespread digitization of key sectors would benefit the long-term trend of Bitcoin because many investors consider it as digital gold. Cameron Winklevoss, the billionaire investor and co-founder of Gemini, said:
“The total amount of above-ground gold on earth fits into an Olympic-sized swimming pool. Physical assets are easier to control, seize, and censor. Bitcoin lives everywhere and nowhere, its digital nature is one of its greatest strengths.”
The long-term performance of Bitcoin. Source: TradingView.com
Bitcoin has seen exponential growth since 2016, surging to as high as $20,000 in 2017.