Did Warren Buffett Sell This Artificial Intelligence (AI) Stock Too Soon?

Warren Buffett is the CEO of the Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) holding company, where he helps manage a $287 billion portfolio of stocks, in addition to numerous privately held subsidiaries. His notoriously simple investing strategy has led to market-beating returns for the last 59 years.

Buffett invests in companies with steady growth, reliable profits, and strong management teams. He especially likes those with shareholder-friendly initiatives, like dividends and stock buyback programs. One thing the investing legend never does is chase the latest stock market themes — not even those as powerful as artificial intelligence (AI).

Berkshire invested in a cloud computing company called Snowflake (NYSE: SNOW) in 2020. It didn’t appear to tick many of Buffett’s usual boxes at the time. As a result, I wasn’t surprised when the conglomerate sold its entire position last year.

However, Snowflake stock has soared by approximately 30% since the sale. Did Buffett and his team exit too soon, and could this be a good long-term buying opportunity for investors?

Snowflake’s Data Cloud enables companies to aggregate their data onto one platform, where it can be analyzed more effectively to extract valuable insights. It’s a highly useful tool for large, complex organizations that spread their cloud workloads across multiple providers, meaning their critical data winds up in silos and becomes fragmented.

Since data is the nectar of most AI software applications, Snowflake is becoming an ideal place to develop and deploy this revolutionary technology. The company launched the Cortex AI platform in late 2023, which provides businesses with access to large language models (LLMs) from leading third parties like Anthropic, OpenAI, DeepSeek, and Meta Platforms. They can plug their internal data into those LLMs to create custom AI software.

Snowflake expanded the platform this year with the launch of Cortex Agents, which can be used to build virtual assistants capable of handling specialized tasks. For example, a business could create an intelligent sales assistant that can analyze data, and even conversation transcripts between salespeople and customers, to rapidly find important information on demand. This can save employees a significant amount of time that would otherwise be spent manually digging through documents.

Snowflake had 11,159 total customers at the end of fiscal 2025 (which ended on Jan. 31), and management said that over 4,000 of them were already using the company’s AI products on a weekly basis.

When Berkshire invested in Snowflake ahead of the tech company’s initial public offering (IPO) in 2020, Snowflake was consistently growing its annual revenue by triple-digit percentages. It’s unrealistic to expect any company to expand at that pace in perpetuity, but Snowflake has experienced a significant deceleration in its top-line growth, despite increasing its costs to acquire more customers and build new products.

Snowflake generated a record $3.4 billion in product revenue during fiscal 2025, but it represented growth of 30%. This was the slowest pace in its tenure as a public company.

Snowflake grew its operating expenses by 28.8% to $3.8 billion during fiscal 2025, which included a 38.5% increase in research and development spending to fuel the company’s expansion into AI. The increase in costs led to a whopping $1.3 billion net loss, which soared by 53.7% compared to the prior year.

If Snowflake’s aggressive spending drove accelerating revenue growth rather than decelerating growth, its net loss likely would have remained stable or even declined. However, the company is making a risky bet that its significant investments into AI will pay off at some point in the future.

Some early signs suggest that could be the case, because Snowflake’s remaining performance obligations (RPOs) jumped 32.6% year over year in the fourth quarter of fiscal 2025, coming in at a record $6.8 billion. RPOs are like an order backlog, so they signal clear demand for the company’s services, which stretches into the future. However, Snowflake only expects to convert 48% of its RPOs into actual revenue over the next 12 months, and there’s no guarantee that the rest will convert in a timeframe that will result in actual growth at the top line.

Moreover, management’s guidance for fiscal 2026 suggests Snowflake’s product revenue will come in at $4.2 billion, which would represent growth of just 24%.

We don’t know exactly what price Berkshire paid for Snowflake, but it went public at $120 per share. Berkshire sold its entire position in the second quarter of 2024 (ended June 30, 2024), and while the exact sale price isn’t clear either, the stock was trading at $135 at the end of the quarter.

As a result, Berkshire probably earned a return of around 12.5% over the four years it held the stock. That isn’t very impressive, considering the conglomerate has averaged a return of 19.9% every year dating back to 1965. Snowflake stock was basically a drag on its overall performance.

Snowflake stock has climbed by 30% since Berkshire sold, so did Buffett and his team make a mistake? I don’t think so, because the stock is quite pricey, and the company’s decelerating growth and blowout losses make its valuation difficult to justify. It trades at a price-to-sales (P/S) ratio of 16.2, so it’s considerably more expensive than other cloud and AI leaders like Microsoft, Alphabet, and Amazon.

It’s unlikely that Buffett himself made the decision to add Snowflake to Berkshire’s portfolio. He typically sticks to businesses he fully understands, and early-stage technology companies are normally outside his wheelhouse (based on some of the stocks he has bought, like Coca-Cola and Bank of America).

One of Buffett’s lieutenants likely made the purchase, but given Snowflake’s valuation and the current state of its business, I wasn’t surprised one bit by the sale last year. Missing out on further upside doesn’t mean selling a stock was the wrong move. Investors can only make decisions based on the information at hand, and there wasn’t a clear fundamental reason for Snowflake to continue climbing, considering some of the challenges I highlighted earlier.

As a result, I think investors should follow Berkshire’s lead and remain on the sidelines when it comes to Snowflake stock.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Berkshire Hathaway, Meta Platforms, Microsoft, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Did Warren Buffett Sell This Artificial Intelligence (AI) Stock Too Soon? was originally published by The Motley Fool