Warren Buffett Investing $600 Million In Snowflake IPO

Whitney Tilson’s email to investors discussing Warren Buffett investing roughly $600 million in the upcoming IPO of Snowflake.

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Q2 2020 hedge fund letters, conferences and more

Warren Buffett Investing In Snowflake IPO

In light of Warren Buffett's lifelong aversion to both initial public offerings ("IPOs") and tech stocks, I was surprised to see that Berkshire Hathaway (BRK-B) is investing roughly $600 million as part of the upcoming IPO of Snowflake, a fast-growing cloud-software and data-warehousing company.

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Is Buffett, who just turned 90, losing his marbles?

I think not – for the simple reason that he almost certainly didn't make this investment. Rather, it was likely initiated by executives Todd Combs or Ted Weschler (I'd guess Combs), who will eventually replace Buffett in managing Berkshire's enormous investment portfolio. Both are more comfortable investing in the tech sector – and Buffett certainly isn't going to second guess them, especially for such a small investment ($600 million is a drop in the ocean of Berkshire's stock holdings, which were valued at $207 billion at the end of the second quarter).

Here's a Bloomberg article about this investment: Go Ahead and Call Warren Buffett a Snowflake. Excerpt:

It may be that Team Buffett doesn't want to miss out on the next tech darling, and so it's taking a chance on Snowflake. It is likely whoever pulled the trigger at Berkshire was able look beyond the company's current large losses – including its approximate $350 million in red ink during its last fiscal year – and see Snowflake's bright future.

Buffett turned 90 last month, and Munger is approaching 97. One thing that was clear at Berkshire's last in-person shareholder meeting, in 2019, was that it needs to do a better job courting the next generation of investors, who may have less fascination with Buffett than with tech pioneers like Elon Musk and Jeff Bezos. And considering Tesla (TSLA) and Amazon's (AMZN) five-year return is more than 500%, compared with Berkshire's 63%, they'd be justified. But look out tech kings: new decade, new Buffett – and one, it appears, who is willing to let Berkshire go in new directions. Plus, he needs to spend that $147 billion of cash somehow.