The Best Warren Buffett Stock to Buy With $500 Right Now

You generally don’t want to copy someone else’s investment ideas, but if there were someone you would look to for inspiration, it’s probably Warren Buffett.

The Wall Street legend has made billions of dollars for himself and countless others as the CEO of Berkshire Hathaway since 1970. Since then, Buffett and his team have amassed a massive stock portfolio within the famous holding company.

That portfolio currently holds 46 stocks and is worth more than $300 billion. Some stocks have resided in the portfolio for decades, while others arrived more recently. For example, Berkshire invested in Amazon (AMZN 2.14%) in 2019.

Here is a closer look at Buffett’s history with Amazon, and why it could be the best Buffett stock you can invest $500 in today.

How Amazon came to be a Buffett stock — well, sort of

Nobody is perfect, even Warren Buffett. It goes without saying that Berkshire Hathaway would have made a good bit of money had Buffett, who knew Amazon founder Jeff Bezos early on, invested in Amazon decades sooner. However, it’s not something that keeps Buffett up at night.

In an interview years ago, before Berkshire Hathaway invested in the stock, Buffett admitted he passed on Amazon because he didn’t foresee the company evolving from an online bookstore into what it is today. Importantly, he emphasized staying within one’s circle of competence.

Buffett, who is famously averse to technology, was at peace because his lack of expertise put him at a disadvantage from the jump. Wisely, he noted that it’s a bigger mistake to miss opportunities in the areas you know best, rather than in those you don’t.

Since the interview, Berkshire Hathaway has built a $2.5 billion stake in Amazon. However, it was fund managers working under Buffett who invested. So, Amazon is technically a Buffett stock because it’s in Berkshire’s portfolio, but it’s an interesting tidbit that Buffett never actually invested in it.

Why it’s still not too late to buy and hold Amazon

Fortunately, there is still time to invest in Amazon, even though it is now one of the world’s largest companies.

Amazon has developed leading or competitive businesses across multiple industries with vast addressable markets. That has given the company ample room to grow amid trends that haven’t entirely played out.

For instance, its core e-commerce business has an estimated 40% market share in the United States. But there is still significant upside, as online retail accounts for only 16% of total U.S. retail spending. Amazon is now expanding into new categories, such as groceries, medicine, and automobiles.

Amazon also operates the world’s largest cloud computing services platform, AWS. It’s the largest contributor to Amazon’s profits. This business was already growing as enterprises shift from on-premises servers to the cloud, and the arrival of artificial intelligence (AI) has effectively poured gasoline on that growth trend.

The company has steadily grown its Prime subscription service to approximately 220 million users and used it to enter new markets, such as video streaming and smart home devices. Amazon’s digital advertising segment isn’t even a headliner, yet it hit an annualized revenue run rate of $70 billion in the third quarter of this year.

Amazon has reached a level of size and scale where it can turn almost any opportunity into a massive business, and remarkably, Amazon still has a tremendous growth runway ahead without doing anything new.

A fair price for an excellent company with serious margin catalysts on the horizon

Amazon’s rapid growth in cloud and digital ads bodes well for earnings, as those segments are more profitable than e-commerce. Wall Street estimates that Amazon will grow earnings per share by an average of 22% to 23% over the next three to five years. That growth makes Amazon a solid buy at 34 times 2025 earnings estimates.

But what could really stand out over the next five to 10 years is the potential impact AI could have on Amazon’s e-commerce business. Amazon spends a ton of money on many thousands of workers who fulfill orders and deliver packages.

Amazon has been developing and testing robotics technology, including humanoid robots for package delivery. A recent document leak suggested the company could replace up to 600,000 workers with robotics over the coming decade. It’s speculation for now, but Amazon is clearly eying an aggressive lean into technology that could significantly improve its profit margins.

The company’s existing competitive moats and relentless pursuit of growth and innovation make Amazon arguably the best Warren Buffett stock you can buy and hold right now. The reasonable valuation is icing on an already delicious cake.