Warren Buffett’s Secret Portfolio Dumps Shares of 3 Supercharged Artificial Intelligence (AI) Stocks (No, Not Nvidia!)

Few, if any, money managers attract the attention of professional and everyday investors Berkshire Hathaway (BRK.A) (BRK.B) CEO Warren Buffett. Since becoming CEO in the mid-1960s, he has overseen a cumulative return on his company’s Class A shares (BRK.A) of more than 5,500,000% and briefly saw his company surpass a market capitalization of 1 trillion dollars.

Investors often await the release of Berkshire’s quarterly Form 13F. A 13F gives investors a concise snapshot of what Wall Street’s brightest money managers bought and sold over the past quarter.

But here’s something that might be a little surprising: The Berkshire Hathaway 13F fails to tell the full story of what’s under the company’s hood.

Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.

The Oracle of Omaha has a secret portfolio of $602 million and three AI stocks are on the rise.

In 1998, Berkshire Hathaway acquired General Re in an all-stock deal valued at $22 billion. Although the crown jewel of this deal was General Re’s reinsurance operations, it also owned a specialist investment firm known as New England Asset Management (NEAM). When the deal was completed in December 1998, Buffett became the new owner of NEAM.

Institutional investors with at least $100 million in assets under management must file a 13F with the Securities and Exchange Commission. As of the quarter ended in June, New England Asset Management held $602 million in securities and is therefore required to disclose what shares were bought and sold.

Even though Warren Buffett doesn’t manage the assets held by NEAM the same way he does the 43-stock, $309 billion portfolio he oversees at Berkshire Hathaway, what NEAM owns is ultimately under the umbrella Buffett’s company. Thus, New England Asset Management is effectively Warren Buffett’s $602 million secret portfolio.

Similar to Buffett’s trading activity over the past two years, the advisers overseeing the NEAM portfolio have mostly been net sellers of the stock. What was once a portfolio that boasted $6.3 billion in assets as of the quarter ending March 2022 now holds “only” $602 million in securities as of June 30, 2024.

Most notably, Buffett’s secret portfolio lost holdings in three high-growth artificial intelligence (AI) stocks — and not, Nvidia is not one of them.

Broadcom

The first AI stock to enjoy success with the asset managers of Buffett’s hidden portfolio is a specialist in network solutions. Broadcom (AVGO). New England Asset Management trimmed its stake in the company by 19% during the quarter ended in June.

There’s no denying that Broadcom has been a clear beneficiary of the rise of AI. Its networking solutions, which are designed to reduce end-to-end latency and maximize the computing potential of AI graphics processing units (GPUs), have quickly become staples in enterprise data centers tasked with running generative AI solutions and train large language patterns.

But what investors, including those at NEAM, might overlook is that Broadcom is much more than just a provider of AI network solutions. For example, it is one of the leading suppliers of wireless chips and accessories for high-end smartphones. Mobile operators upgrading their networks to support 5G download speeds has led to a sustained cycle of device replacements that clearly benefits Broadcom.

Broadcom is also a key supplier of optical components used in automated industrial equipment, next-generation vehicle networking solutions and cyber security solutions.

I’d be remiss if I didn’t also mention that Broadcom occasionally relies on acquisitions to expand its ecosystem of products and services and improve cross-selling opportunities. Its latest acquisition — a $69 billion deal to buy cloud-based virtualization software company VMware, which closed last year — should help it become a key player in private clouds and hybrids for businesses.

The only logical reason to sell Broadcom stock is if you think the AI ​​bubble is about to burst — and there are plenty of signs that suggest that might happen. While an AI bubble-bursting event would undoubtedly hurt Broadcom’s stock, its businesses are well-diversified and capable of navigating anything thrown their way.

Image source: Getty Images.

Microsoft

A second AI stock that money managers in Warren Buffett’s secret $602 million portfolio seem to be eating up is the second largest publicly traded company. Microsoft (MSFT). During the second quarter, a hair over 20% of NEAM’s stake in Microsoft was shown.

Microsoft is integrating AI into a variety of operational segments. This includes offering generative AI solutions to its Azure customers. Azure is the world’s #2 cloud infrastructure services platform and has consistently been Microsoft’s fastest growing operating segment. With most companies still early in their cloud spending cycle, Azure can be counted on for sustained double-digit sales growth.

Microsoft has also invested inorganically in the AI ​​revolution. For example, it is a lead investor in OpenAI, the company behind the popular chatbot ChatGPT. OpenAI assisted Microsoft in relaunching its Bing search engine and Edge browser with AI capabilities.

Moreover, Microsoft and BlackRock announced plans last week to launch a $30 billion fund that will invest in various AI infrastructures. Microsoft is flush with cash, and its management team has demonstrated its desire to expand its ecosystem of products and services by putting it to work.

So why sell a fifth of Microsoft’s stake in NEAM if the company is firing on all cylinders? The answer probably lies in Microsoft’s assessment.

As of the closing bell on September 17, Microsoft was valued at nearly 32 times consensus earnings per share for fiscal 2026 (ended June 30, 2026). That’s about 7% higher than its average forward price-to-earnings (P/E) multiple over the last five years, and it’s a somewhat aggressive earnings multiple given how expensive the stock market is right now.

Alphabet

The third AI stock in Buffett’s secret $602 million portfolio to be sent to the block is parent Google Alphabet (GOOGL) (GOOG). Specifically, managers at NEAM sold nearly 28% of their fund’s stake in Alphabet Class A ( GOOGL ) in the second quarter.

Similar to Microsoft, Alphabet should see much of its AI growth come from integrating its generative AI solution with its cloud infrastructure services platform.

Google Cloud is the world’s No. 3 cloud infrastructure services platform by total spend and became recurring profitable last year. Because the margins associated with cloud services are typically much higher than advertising margins, Google Cloud has a chance to be Alphabet’s main driver of operating cash flow by the turn of the decade.

For now, Alphabet’s core operating segment continues to be its Google search engine. For more than nine years, Google has accounted for no less than 90% of the monthly share of global internet searches. This makes it a clear target for advertisers and gives Alphabet phenomenal ad pricing power.

In addition, Alphabet has nearly $111 billion in cash, cash equivalents and marketable securities. Similar to Microsoft, Alphabet’s balance sheet gives it a level of financial flexibility that few companies can match.

Given that Alphabet is historically cheap, NEAM’s sale of Alphabet stock is a bit of a head scratcher. The best guess as to why Buffett’s secret portfolio is taking out Alphabet stock is the increasing likelihood that the AI ​​bubble will burst and stocks as a whole will be expensive.