Warren Buffett and technology stocks are typically like oil and water. Or whiskey and pineapple juice. Or Kim Kardashian and wedding rings. They generally don’t belong together.
But that could be changing. Buffett bought $10.7 billion of IBM (NYSE: IBM) stock over the last eight months, becoming the technology services company’s second-biggest investor after investment firm State Street Global Advisors. Buffett broke the news yesterday, revealing that his investment firm Berkshire Hathaway (NYSE: BRK-B, BRK-A) had taken a 5.4 percent stake in IBM.
That’s not all. Berkshire’s quarterly SEC filing also revealed that it had taken positions in two other tech stocks – Intel (Nasdaq: INTC) and DirecTV (Nasdaq: DTV) – during the third quarter. Suddenly Buffett’s more tech-savvy than your company’s IT guy.
The news was a bit of a shock coming from a man who for years has maintained that he won’t invest in technology because he simply doesn’t understand it. The investment begs the question: If Warren Buffett is buying tech stocks, does that mean the technology sector is about to take off?
Not necessarily. IBM isn’t your typical fast-rising, flavor-of-the-year tech stock. It’s one of the most solid companies in the U.S., regardless of industry. Its $223 billion market capitalization is the fourth largest in the country. IBM has been in existence for 100 years. In Buffett’s mind, its business will continue to grow: He likes that IBM provides software and technology services for big companies and governments.
Few companies are on more solid footing than IBM.
Berkshire’s investments in Intel and DirecTV, however, are more telling indications that Buffett’s icy disposition toward technology stocks may be thawing. Berkshire bought 9.3 million shares of Intel, the computer chipmaker, and 4.3 million shares of DirecTV, the leading provider of satellite television. Those investments pale in comparison to the 57 million IBM shares Buffett bought. But they’re pretty substantial considering those tech stocks are much smaller.
Intel has a market capitalization of $129 billion. DirecTV’s is a lot smaller, at $33 billion. The stocks aren’t exactly small potatoes. But they’re not as solid as IBM. Perhaps Buffett’s investment in these two smaller stocks — more so than his IBM purchase — is a truer sign that tech stocks are becoming less volatile.