Warren Buffett does not own Nvidia. Here's How He Profited From Artificial Intelligence (AI) Stock's Big Gains Anyway

Warren Buffett and tech stocks go hand in hand…well, they don't usually go together. The legendary investor generally avoids stocks that are out of his wheelhouse. And technology is not its strong point.

Unsurprisingly, Buffett does not own any shares of Nvidia (NVDA -3.22%). So, has it missed the artificial intelligence (AI) stock's massive gains over the past few years? Not entirely.

Buffett's direct ways to profit from Nvidia

Although Buffett does not own any shares of Nvidia, Berkshire Hathaway's portfolio includes two exchange-traded funds (ETFs) that do this. As a result, it directly benefited from Nvidia's stock surge.

Nvidia has been added to the S&P500 in 2001, replacing the struggling energy company Enron. In the fourth quarter of 2019, Berkshire initiated positions in two S&P 500 index ETFs: the SPDR S&P 500 ETF Trust (TO SPY -0.13%) and the Vanguard S&P 500 ETF (FLIGHT -0.22%). The conglomerate has not sold shares of either ETF since then.

To be sure, Buffett hasn't directly benefited much from Nvidia's gains via Berkshire's holdings in these two S&P 500 index ETFs. For one thing, Berkshire only holds small positions in the funds: 39,400 shares of the ETF SPDR and 43,000 shares of the Vanguard ETF. These holdings represent less than 0.1% of Berkshire's total portfolio. For several years, Berkshire's wholly owned subsidiary, New England Asset Management (NEAM), also held positions too small to make a difference in both ETFs.

Additionally, Nvidia represents only 7.25% of the S&P 500, weighted by market cap. When Berkshire first purchased the two S&P 500 ETFs in late 2019, AI stock had a much lower weighting than it does today.

How the “Oracle of Omaha” indirectly profited from Nvidia

Buffett has also benefited indirectly from Nvidia's remarkable rise. Exactly how he did this requires deductive analysis.

Let's start with the fact that stocks of major cloud service providers have performed exceptionally well lately. Actions of Amazon (AMZN 1.60%)of which Amazon Web Services (AWS) is the leading cloud services platform, has climbed 81% last year and more than 20% since the start of the year. Microsoft (MSFT 0.92%) the stock has surged 57% in 2023 and is up nearly 20% this year. Alphabet (GOOG 1.44%) (GOOGL 1.89%)which operates Google Cloud, has seen its shares rise 58% in the last year and more than 25% so far in 2024.

There is no doubt that the AI ​​boom, especially with the increasing adoption of generative AI, has been a key factor in the performance of all three cloud stocks. It is important to note that Amazon, Microsoft and Alphabet are Nvidia's main customers. All three companies certainly wouldn't have been able to handle the growing demand for cloud services with Nvidia's AI chips.

So I think it's fair to say that Nvidia is partly responsible for the stock price increases experienced by Amazon, Microsoft, and Alphabet. However, it is difficult to determine how much of these gains can be attributed to Nvidia.

So what does this have to do with Buffett? First, Berkshire owns 10 million shares of Amazon. Second, NEAM (a subsidiary of Berkshire) holds positions in Alphabet and Microsoft. Third, the three cloud stocks are also key holdings in Berkshire's two S&P 500 index ETFs.

You may have made money with Nvidia the same way

It's possible (and maybe even likely) that you're in the same position as Buffett: profiting from Nvidia without owning the shares. The SPDR S&P 500 ETF Trust is the largest ETF by assets under management, while the Vanguard S&P 500 ETF ranks third. Even if you don't own any of the ETFs, your investment portfolio could include one or more other ETFs or mutual funds with positions in Nvidia.

Amazon, Alphabet and Microsoft are also widely held stocks. You can either own some or all of them directly, or hold funds with stakes in mega-cap stocks.

Granted, these ways to make money with Nvidia aren't as rewarding as owning shares of the graphics processing unit (GPU) maker. But it could at least provide some consolation to investors who have been kicking themselves for not buying Nvidia sooner. This also highlights one of the benefits of investing in S&P 500 index ETFs: big winners like Nvidia get higher and higher weightings in the index as their market cap increases – and can earn you more money in the process.