How does Berkshire Hathaway invest in NVIDIA?

Decoding Berkshire Hathaway's Nuanced Exposure to NVIDIA

Berkshire Hathaway, under the legendary stewardship of Warren Buffett and Charlie Munger (until his recent passing), is renowned for its disciplined, value-oriented investment philosophy. This approach typically favors established companies with strong competitive advantages, predictable earnings, and understandable business models. In the fast-paced, high-growth technology sector, and specifically concerning a high-flying stock like NVIDIA (NVDA), Berkshire Hathaway's direct involvement might seem counterintuitive to its traditional strategy. Indeed, as of official filings covering periods through early 2024 and looking into 2025-2026, Berkshire Hathaway has not reported a significant direct ownership stake in NVIDIA. However, the sophisticated nature of large institutional portfolios means that exposure can manifest in less obvious, yet still impactful, ways. This article explores the various avenues through which Berkshire Hathaway gains exposure to NVIDIA, shedding light on the intricacies of institutional investment strategies.

The Mechanism of Indirect Exposure: A Core Principle

The concept of indirect exposure is fundamental to understanding how large, diversified portfolios like Berkshire Hathaway's interact with individual assets they don't directly purchase. In simple terms, indirect exposure occurs when an investor holds an asset whose value is partly or wholly derived from, or influenced by, another underlying asset. For crypto users, this can be analogous to holding a wrapped token (like wBTC) that represents an underlying asset, or investing in a diversified crypto fund that holds various digital currencies, rather than purchasing each token individually.

For Berkshire Hathaway, this indirect pathway to NVIDIA's performance primarily occurs through its holdings in broad-market index exchange-traded funds (ETFs). These financial instruments are designed to track the performance of a specific index, such as the S&P 500, by holding the underlying securities in proportions that mirror the index's composition. When a company like NVIDIA is a component of such an index, any investor holding an ETF tracking that index automatically gains a fractional, indirect stake in NVIDIA.

This strategy offers several benefits for large institutional investors:

• Diversification: Instead of putting all capital into a single stock, ETFs spread risk across hundreds of companies, reducing the impact of any single company's poor performance. This aligns with a conservative risk management approach often favored by long-term investors.
• Cost-Efficiency: Investing in an ETF is typically more cost-effective than buying hundreds of individual stocks, both in terms of transaction fees and management overhead.
• Market Exposure: ETFs provide broad market exposure, allowing investors to participate in the overall growth of an economy or sector without needing to pick individual winners and losers. This can be particularly appealing for companies whose primary focus is on capital allocation across large, well-established businesses, rather than micro-managing a volatile tech portfolio.
• Liquidity: Most major ETFs are highly liquid, allowing large positions to be bought and sold with ease, an important consideration for a fund of Berkshire's scale.

S&P 500 Index ETFs: NVIDIA's Gateway to Berkshire's Portfolio

Berkshire Hathaway's portfolio includes substantial holdings in S&P 500 index ETFs, notably the SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO). To understand how this translates into NVIDIA exposure, it's essential to unpack what these ETFs represent.

What is an S&P 500 ETF?

The S&P 500 is a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. It is widely regarded as one of the best gauges of large-cap U.S. equities and the overall U.S. stock market. Companies are selected for inclusion by a committee based on criteria such as market size, liquidity, and sector representation. The index is market-capitalization weighted, meaning companies with larger market caps have a greater influence on the index's performance.

An S&P 500 ETF, like SPY or VOO, is an investment fund traded on stock exchanges, similar to individual stocks. Its objective is to replicate the performance of the S&P 500 index. This is achieved by holding the stocks of the companies listed in the index, typically in the same proportions as their weighting within the index.

How NVIDIA Fits In

NVIDIA, a leading designer of graphics processing units (GPUs) and a dominant player in artificial intelligence computing, has experienced phenomenal growth and a significant increase in its market capitalization. As its market cap has soared, so has its weighting within the S&P 500 index.

Let's illustrate with an example:

1. Index Inclusion: NVIDIA is a component of the S&P 500.
2. Market Cap Weighting: Due to its high market capitalization, NVIDIA holds a substantial weighting within the S&P 500. For instance, if NVIDIA constitutes 3% of the S&P 500 by market capitalization, then an S&P 500 ETF will hold NVIDIA shares equivalent to approximately 3% of its total assets under management.
3. Berkshire's Holding: If Berkshire Hathaway holds, for argument's sake, $10 billion worth of S&P 500 ETFs, and NVIDIA makes up 3% of the S&P 500, then roughly $300 million of Berkshire's ETF investment indirectly represents an investment in NVIDIA.

This means that as NVIDIA's stock price rises, the value of the S&P 500 index increases, and consequently, the value of the S&P 500 ETFs also increases. Berkshire Hathaway, by holding these ETFs, therefore benefits from NVIDIA's strong performance without ever having to directly purchase a single share of NVDA through its primary investment operations. This strategy allows Berkshire to participate in the broader market's success, including the growth of leading technology companies like NVIDIA, while adhering to its diversified, passive investment approach for a portion of its vast capital.

Subsidiary Investment Mandates: New England Asset Management's Direct Stake

Beyond the broad-market index exposure, another layer of Berkshire Hathaway's indirect (or, in this case, semi-direct) connection to NVIDIA comes through its subsidiaries. One such entity, New England Asset Management (NEAM), a wholly-owned subsidiary of Berkshire Hathaway, operates with its own investment mandates and strategies.

The Role of Subsidiaries in Diversified Conglomerates

Large conglomerates like Berkshire Hathaway often have numerous subsidiaries, each with distinct business operations and, sometimes, independent investment strategies. These subsidiaries might manage their own portfolios for various reasons:

• Specific Expertise: Some subsidiaries specialize in particular asset classes or sectors, requiring different investment approaches than the parent company's core strategy.
• Regulatory Requirements: Certain subsidiaries, especially in insurance or financial services, may have regulatory requirements regarding the types of assets they can hold to back their liabilities.
• Operational Cash Management: Subsidiaries might invest excess operational cash in publicly traded securities to generate additional returns, often with a shorter-term or more tactical focus than the parent's long-term strategic investments.

New England Asset Management's NVIDIA Position

As of late 2023, New England Asset Management reported holding 3,050 NVIDIA shares. While this might seem a small number in the context of Berkshire Hathaway's multi-hundred-billion-dollar portfolio, it is significant for several reasons:

• Direct Ownership (at subsidiary level): Unlike the ETF holdings, these shares represent a direct, albeit small, stake in NVIDIA. This means NEAM's investment team made an active decision to purchase NVIDIA stock.
• Different Investment Philosophy: This direct holding suggests that NEAM's investment philosophy or mandate allows for tactical investments in individual growth stocks, which might deviate from Berkshire Hathaway's core, value-driven stock-picking strategy championed by Buffett and Munger. It could be part of a broader diversified portfolio managed by NEAM for its clients or for its own operational needs.
• Scale and Significance: For NEAM, 3,050 shares of NVIDIA, especially given NVIDIA's high stock price, would represent a meaningful position within its specific portfolio, though it pales in comparison to Berkshire Hathaway's overall holdings. This illustrates how different parts of a large conglomerate can have varying appetites for risk and different investment horizons.

This subsidiary holding underscores the complexity of institutional investment and highlights that a large entity like Berkshire Hathaway is not a monolithic investment vehicle. Different arms of the organization can pursue strategies that, while aligned with the overarching financial health of the parent, might involve direct exposure to assets the parent company's central investment committee typically avoids.

Berkshire Hathaway's Overarching Investment Philosophy and NVIDIA

Understanding why Berkshire Hathaway might have limited direct exposure to NVIDIA through its primary investment portfolio requires a brief revisit of its core philosophy:

• Value Investing: Buffett and Munger are ardent proponents of value investing, seeking to buy businesses at a price significantly below their intrinsic worth. They prioritize businesses that are easy to understand, have durable competitive advantages (moats), and predictable cash flows.
• Long-Term Horizon: Investments are typically held for the long term, often indefinitely, focusing on the underlying business's fundamentals rather than short-term market fluctuations.
• Avoidance of Speculation: The Berkshire philosophy often shies away from highly speculative or rapidly evolving sectors where competitive landscapes can shift quickly and valuations are often based on future growth potential rather than current earnings.

NVIDIA, while an incredibly successful and innovative company, operates in a highly dynamic technology sector characterized by rapid innovation, intense competition, and often high valuation multiples based on future growth expectations rather than conservative earnings. This profile might not perfectly align with the traditional "Buffett-style" direct stock pick, which prefers companies with established, stable business models that are less prone to technological disruption.

For instance, Berkshire's significant holdings in Apple are an exception often cited. Buffett viewed Apple not just as a tech company, but as a consumer goods company with an incredibly strong brand and ecosystem, resembling a utility for many users. The investment decision was rooted in Apple's durable consumer moat and brand loyalty, fitting the value investing framework. NVIDIA, despite its undeniable dominance in its niche, might be perceived differently due to its cyclical nature, dependence on cutting-edge research, and high valuation metrics.

Therefore, Berkshire's limited direct stake in NVIDIA, coupled with its indirect exposure through ETFs and a subsidiary, represents a balanced approach. It allows the conglomerate to benefit from the broader market's growth, including that driven by technology giants, without committing a substantial portion of its core capital to a sector that historically hasn't been a primary focus for its most famous direct stock selections. This strategy illustrates a nuanced approach to risk and return, leveraging passive investment for broad exposure while reserving active, direct investments for businesses that fit a highly specific, long-term value criteria. This layered approach is a hallmark of sophisticated institutional investing and offers a valuable lesson in portfolio construction, demonstrating that even the most conservative investors can find ways to participate in high-growth sectors through diversified and indirect means.