Is Warren Buffett a Supporter of Cloud Computing?
“It’s only when the tide goes out that you learn who’s been swimming naked.”
– Warren Buffett, legendary investor and one of the richest men in the world.
In the wake of the sub-prime mortgage crisis and the collapse of Bear Stearns and Lehman Brothers, Warren Buffett’s quote seems especially relevant. While this clearly demonstrates his aversion to risk, his recent buy may possibly indicate a support for cloud computing.
In a world full of corrupt leaders and avaricious businessmen, Warren Buffett is a role model worth looking up to. In spite of a fortune that dwarfs the GDP of several nations, he leads a life of simplicity eschewing the typical luxuries of the rich boy club. Furthermore, he has pledged to give away 95% of his fortune to charity. What’s even more impressive is that this charitable donation will not be to an organization that bears his name but to the Bill and Melinda Gates Foundation, founded by his good friend and fellow billionaire Bill Gates. And now, with the Giving Pledge, he is encouraging other billionaires to follow suit in pledging their fortunes to charity.
For several decades now, Warren Buffett has been eulogized as the “Oracle of Omaha” – the smartest investor in the world. Not surprisingly, his investments are watched with keen interest by investors worldwide, both Wall Street firms and the common man. Buffett’s investments follow a simple philosophy – he buys stock in an industry only when he understands it. And he buys for the long term. As he said, his “favorite holding period is forever.” That is why, when tech stocks ruled the market, he kept away because he didn’t understand the industry. Considering what happened next with the dotcom bubble, it seems a very intelligent thing in retrospect.
However, a recent development seems to show a change in Buffett’s aversion to the tech industry. While Buffett has, over the years, put his money in traditional industries like insurance (Swiss Re), financial services (Goldman Sachs), railroads (Burlington Northern Santa Fe) and Coca Cola, his recent foray into the tech world with $10.7 billion worth of IBM stock has come as a surprise.
Rebecca Lipman, writing on the NASDAQ Community website, has postulated that Buffett’s investment may be influenced by the company’s cloud computing initiatives (See: Tech Ideas: Buffett Shows How to Buy Into Cloud Computing, Cheaply. She has also mentioned how the ISE Cloud Computing Index, of which IBM is a part, has risen 277% over the past three years, versus 11% for the S&P 500. I had earlier covered this area of stock appreciation (See: Breakout Quarter for Cloud Computing Stocks) as well as possible concerns on valuations (See: Are Cloud Computing Stocks Overvalued?) in previous articles.
Personally, I believe Buffett’s buy has to do with more than cloud computing, although IBM does have big plans in this field (See: IBM Expects To Generate $7 billion In Cloud Computing Revenues By 2015: CEO).
Buffett is buying into a company that meets his criteria of stable business with a consistent record; considering that Big Blue had almost $100 billion in revenues last year and the cloud is expected to generate only (relatively speaking) $7 billion by 2015, Buffett is buying more than innovations in the cloud.
By Sourya Biswas