Investing

Wall Street Thinks This Warren Buffett AI Stock Pick Has 38% Upside

Trey Thoelcke

Published: May 10, 2024 9:45 am

It’s no surprise that when Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-A) part with shares of Apple Inc. (NASDAQ: AAPL), the largest stake in the Berkshire portfolio, it makes headlines. The so-called Oracle of Omaha is probably the best-known investor in the world, certainly one of the most successful. Millions of investors and aspiring investors still hang on his every word. So, is it time to dump Apple then? Not so fast. Buffett affirmed at the recent annual shareholder meeting that he remains a big proponent of Apple, and he does not expect the stock to cease being the top holding in the Berkshire portfolio anytime soon. The trim was apparently in anticipation of coming tax changes, according to Inc.

However, Wall Street analysts have not been especially optimistic about Apple, at least in the short term. Sentiment is changing though. The consensus price target had indicated less than 3% upside potential, but that has increased to about 10%. Yet, there is one Buffett stock pick for which the analysts have even higher hopes. For Snowflake Inc. (NYSE: SNOW), they see around 38% potential upside.

Snowflake’s Prospects

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Berkshire had over 6.1 million shares of Snowflake on last look, though that is less than 1% of the portfolio.

Snowflake is based in Bozeman, Montana, and was founded in 2012 by data warehousing experts Benoît Dageville, Thierry Cruanes, and Marcin Żukowski. It went public in 2020 in one of the largest software IPOs in history. Competitors include International Business Machines Corp. (NYSE: IBM), MongoDB Inc. (NASDAQ: MDB), Oracle Corp. (NYSE: ORCL), and Teradata Corp. (NYSE: TDC).

Former Chief Executive Officer Frank Slootman has been replaced by Sridhar Ramaswamy, a former top executive at Google. Ramaswamy was also the CEO of AI startup Neeva when Snowflake acquired it in 2023. Last month, Snowflake launched its enterprise-grade large language model called Arctic, and the company teamed up with Nvidia on AI earlier this year. Snowflake’s first-quarter earnings report is scheduled for May 22.

Snowflake’s share price is marginally higher than a year ago, but the stock is down more than 21% year to date. Most of that retreat followed the most recent earnings report, which included disappointing guidance. Note that the $218.36 consensus price target is less than the 52-week high of $237.72 a share.

Out of 45 analysts who cover the stock, 29 recommend buying shares, with seven of them rating the stock at Strong Buy. In April, Rosenblatt upgraded the shares to Buy, and KeyBanc initiated coverage with an Overweight rating. Snowflake is also popular with hedge funds, including at Vanguard, BlackRock, and Morgan Stanley. Also note that Snowflake’s CEO purchased $5 million worth of the stock back in March.

Is Warren Buffett Still Relevant?

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Forbes asked in 2019 whether Buffett was still relevant. The answer was yes, for his vision, his resilience, and his principles. Despite the current market and economic uncertainty, little about Buffett and his style of investing has changed since then, as he approaches 94 years of age. He built his wealth by value investing. That is, by buying into businesses with a solid foundation but with stocks that trade for less than their intrinsic value. It is a strategy that made Berkshire Hathaway into a conglomerate with a current market cap near $875 billion and made Buffett one of the wealthiest persons in the world. No wonder his words and actions still make headlines.

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