FX168 Financial News (North America) - Few fund managers have been as successful as Warren Buffett, CEO of Berkshire Hathaway. Since becoming CEO in the mid-1960s, he has led the company's Class A shares to appreciate by over 5,500,000% and briefly witnessed his company's market cap exceed 1 trillion US dollars.

Investors often eagerly await the quarterly release of Berkshire's form 13F. Form 13F provides investors with a concise snapshot of the recent buys and sells by Wall Street's smartest fund managers.

But there's one thing that might surprise people: Berkshire Hathaway's 13F fails to tell the full story behind the company.

Buffett has a secret $0.602 billion investment portfolio, with three ai stocks being heavily hit.

In 1998, Berkshire Hathaway Inc. acquired General Re Corporation for 22 billion US dollars in an all-stock deal. While the crown jewel of this deal was General Re's reinsurance business, it also included a professional investment firm called New England Asset Management (NEAM). When the deal closed in December 1998, Buffett became the new owner of NEAM.

Institutional investors managing at least 0.1 billion US dollars in assets are required to file a form 13F with the U.S. Securities and Exchange Commission. As of the quarter ending in June, New England Asset Management held 0.602 billion US dollars in securities, triggering the need to disclose the traded stocks.

Although Warren Buffett manages the assets held by NEAM differently from the 43 stocks and 309 billion US dollars investment portfolio supervised at Berkshire Hathaway, NEAM's assets ultimately fall under Buffett's umbrella. Therefore, New England Asset Management is effectively Warren Buffett's secret investment portfolio of 0.602 billion US dollars.

Similar to Buffett's trading activity over the past two years, the advisors overseeing the NEAM investment portfolio are primarily net sellers of stocks. As of the quarter ending in March 2022, the investment portfolio that once held 6.3 billion US dollars in assets now 'only' holds 0.602 billion US dollars in securities as of June 30, 2024.

The most noteworthy point is that Buffett's secret investment portfolio has been selling its holdings in stocks to three high-growth artificial intelligence (AI) stocks, and it's worth noting that Nvidia is not one of them.

Broadcom

The first high-growth artificial intelligence stock recommended by the secretly held asset management company in Buffett's hidden portfolio is Broadcom (NASDAQ stock code: AVGO), a network solution expert. New England Asset Management reduced its stake in the company by 19% in the quarter ending in June.

There is no denying that Broadcom is clearly benefiting from the rise of AI. Its network solution aims to reduce tail latency and maximize the computing potential of AI graphics processing units (GPUs), rapidly becoming a flagship product for enterprise data centers responsible for operating generative AI solutions and training large language models.

However, investors including NEAM may overlook the fact that Broadcom is not just an AI network solution provider. For example, it is one of the leading wireless chip and accessory suppliers for the next generation of smartphones. Wireless operators upgrading their networks to support 5G download speeds have led to a continuous device replacement cycle, which clearly benefits Broadcom.

Broadcom is also a leading supplier of optical components for industrial automation equipment, next-generation automotive network solutions, and network security solutions.

It is worth noting that Broadcom occasionally relies on acquisitions to expand its product and service ecosystem and increase cross-selling opportunities. Its latest acquisition, acquiring cloud-based virtualization software company VMware for $69 billion, completed last year, should help it become a key player in the private and hybrid enterprise cloud space.

The only logical reason for selling Broadcom stocks is the belief that the artificial intelligence bubble is going to burst - and there are many signs that this could happen. While an artificial intelligence bubble burst event would undoubtedly hurt Broadcom's stocks, its business is very diversified and capable of handling any possible scenario.

Microsoft

The fund manager of Warren Buffett's $60.2 billion secret investment portfolio seems dissatisfied with the second artificial intelligence stock, which is the second largest listed company, Microsoft. In the second quarter, NEAM's stake in Microsoft exceeded 20%.

Microsoft is integrating AI into various operational areas. This includes providing generative AI solutions for its Azure customers. Azure is the world's second-ranked cloud infrastructure service platform and has always been Microsoft's fastest-growing operational area. As most companies are still in the early stages of cloud spending cycles, Azure can expect sustained double-digit sales growth.

Microsoft has also been investing in the AI field. For example, it is a core investor in OpenAI, the company behind the popular chatbot ChatGPT. OpenAI assists Microsoft in revamping its AI-powered Bing search engine and Edge browser.

In addition, Microsoft and BlackRock announced plans last week to launch a $30 billion fund that will invest in various AI infrastructure. Microsoft is cash rich, and its management team has indicated willingness to expand its product and service ecosystem by deploying its capital.

So, why sell Microsoft shares? The answer may lie in Microsoft's valuation.

As of the close on September 17th, Microsoft's valuation for the 2026 fiscal year (ending June 30, 2026) is close to a multiple of 32 times the general market earnings per share. This is about 7% higher than the average forward P/E multiple of the past five years, which is a bit aggressive considering current stock market prices.

Alphabet

In Warren Buffett's $60.2 billion secret investment portfolio, the third artificial intelligence stock to hit the chopping block was Alphabet, Google's parent company. Specifically, Buffett sold nearly 28% of his fund's Class A shares in Alphabet in the second quarter.

Similar to Microsoft, most of Alphabet's AI-related growth is expected to come from the integration of generative AI solutions with its cloud infrastructure services platform.

Based on total spending, Google Cloud ranks third globally among cloud infrastructure service platforms, with recurring profits last year. Due to the fact that profit margins associated with cloud services are typically much higher than advertising profit margins, Google Cloud has the opportunity to become a major driver of Alphabet's operational cash flow at the turn of the century.

Currently, Alphabet's core operating division is still its Google search engine. For over nine years, Google has held a share of over 90% of global internet searches every month. This makes it the clear preference for advertisers, providing Alphabet with exceptional advertising pricing power.

Furthermore, Alphabet holds nearly $111 billion in cash, cash equivalents, and marketable securities. Like Microsoft, Alphabet's balance sheet provides it with financial flexibility that few companies can match.

Given Alphabet's historical cheapness, Buffett's sale of Alphabet stock is a bit of a headache. The best guess as to why Buffett's secret investment portfolio sold off Alphabet shares is that the possibility of the artificial intelligence bubble bursting is increasing, and the stock is overall expensive.