3 Tech Compounders Fit for Warren Buffett's Portfolio

Legendary investor Warren Buffett loves investing in great compounding businesses with wide moats at attractive valuations. While he has largely avoided tech stocks in the past, that has changed in the last few years, with him leading the charge with investments in Apple and Alphabet.

Let's look at three tech stocks that would be great fits for Warren Buffett's portfolio, even if he is unlikely to buy the stocks anytime soon.

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Meta Platforms

Few companies know how to monetize free users better than Meta Platforms (NASDAQ: META), and that is only getting better through the use of AI. The company has the perfect flywheel business model for AI, where its investments in improved models are keeping users on its sites longer and helping advertisers better convert them to customers. This is turn is leading to both more ad impressions and higher ad prices due to the increased effectiveness of the ads.

With over 3.5 billion daily active users from around the globe, Meta enjoys massive global network effects and scale efficiencies. The company produces massive operating cash flow that it can now invest in high return investments in AI, keeping the flywheel going. Meanwhile, the stock is on sale, trading at a forward P/E below 16 times 2027 analyst estimates.

The one thing likely keeping Buffett from owning the stock, though, is CEO Mark Zuckerberg's penchant for wasting money with Reality Labs. However, this is a stock that's still a buy in my book.

Microsoft

Microsoft (NASDAQ: MSFT) has a huge enterprise lock-in with Office 365, which gives it both solid pricing power and the vehicle to provide AI tools and agents to a huge customer base. With trusted security and guardrails in place, Microsoft has been seeing strong adoption of its Microsoft 365 AI assistant Copilot, which has been driving strong growth in its enterprise software segment.

Meanwhile, Buffett has already shown a fondness for the economics of cloud computing, given his investment in Alphabet. Microsoft Azure shares similar characteristics with strong, steady revenue growth. The company also has one of the largest backlogs in the space given its relationship with OpenAI.

Even after a recent jump in price, the stock is still attractively valued, trading at 24.5 times this fiscal year's analyst earnings consensus. It also owns a 27% stake in OpenAI, which could become the next $1 trillion IPO.

The one thing that likely keeps Buffett away from the stock is his soured relationship with Microsoft founder Bill Gates. However, the stock still looks like an attractive buy.

Taiwan Semiconductor Manufacturing

The arms dealer in the AI infrastructure boom, Taiwan Semiconductor Manufacturing (NYSE: TSM) has an unassailable competitive moat built around its engineering expertise and scale. As the only foundry that has proven to produce advanced logic chips at high yields at scale, the company has created a virtual monopoly in the space.

This has given the company huge customer lock-in and pricing power. It's become a vital cog in the semiconductor industry and an important partner to chipmakers, which basically have to coordinate with TSMC on their technological roadmaps and capacity expansion plans. While semiconductor manufacturing is a capital-intensive business, this ensures that the company gets strong returns on its investments.

Buffett has called TSMC "one of the best-managed companies and most important companies in the world," while it has also garnered praise from Nvidia CEO Jensen Huang, who called it "one of the greatest companies in the history of humanity, and anybody who wants to buy TSMC stock is a very smart person." That's some high praise, yet the stock remains cheap, with a forward P/E of just 19 times 2027 analyst estimates.

While Buffett was briefly invested in the stock in the past, geopolitical tensions have kept him from making it a long-term investment. However, that seems like a long-shot black swan event, and those fears should not keep investors from buying this great stock.

Geoffrey Seiler has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.