In 1987, Bill Gates became the youngest individual to achieve billionaire status at the age of 23. Twelve years later, he became the first person to reach a net worth of $100 billion, cementing his position as the inaugural centibillionaire.
In 2000, Gates and his then-wife Melinda founded the Bill and Melinda Gates Foundation, aiming to improve global healthcare and combat poverty. Over the last quarter-century, Gates has generously donated a significant portion of his fortune to the foundation, with plans to eventually give away all his assets to charitable causes during his lifetime.
Warren Buffett, another centibillionaire, has also been a significant donor to the Gates Foundation since 2006. However, his contributions will cease upon his death. Buffett served as a trustee of the foundation until 2021, likely influencing its investment strategies.
The foundation’s equity portfolio is currently valued at approximately $48 billion, with over 69% of this amount concentrated in just three stocks.
1. Microsoft (31%)
In 2022, Gates contributed $20 billion to his foundation, largely through Microsoft stock donations. As one of the largest shareholders of the company he founded, Microsoft stock continues to represent a significant portion of his wealth. The trust acquired around 38 million shares in 2022, valued at approximately $8.9 billion at the time.
The foundation’s portfolio still holds nearly 35 million Microsoft shares, with their value rising to $14.8 billion. Retaining these shares has proven beneficial for both the foundation and Gates, with the stock appreciating over 60% since Gates’ donation in July 2022.
Microsoft’s recent strong performance is largely due to its involvement in the expansion of generative artificial intelligence. In early 2023, the company increased its investment in OpenAI, a leader in generative AI, and solidified its position as a top cloud computing platform for AI developers. Microsoft’s Azure cloud platform saw a 60% year-over-year increase in AI customers in the latest quarter, surpassing 60,000 in total.
Additionally, Microsoft is incorporating AI features into its enterprise software, with 77,000 organizations using its Copilot software to enhance productivity and creativity across platforms like GitHub, Office, and other native applications. The customer base continues to expand rapidly, growing 60% sequentially in the most recent quarter.
Microsoft shares currently trade at about 32 times forward earnings estimates, a premium over the S&P 500. However, the stock justifies this premium due to its leadership in the AI cloud platform sector and its extensive enterprise software customer base, both of which provide significant growth potential. Moreover, its strong cash position and free cash flow generation offer ample capital to seize growth opportunities.
2. Berkshire Hathaway Class B shares (23%)
As previously noted, Warren Buffett regularly donates to the Gates Foundation, with his latest contribution consisting of 9.9 million Class B shares of Berkshire Hathaway. By converting super-voting Class A shares to Class B shares before donating, Buffett retains control of the company.
Buffett’s donation increased the trust’s Berkshire Hathaway holdings to nearly 25 million shares, currently valued at $11.2 billion.
However, the trust’s Berkshire position is expected to decrease over the coming year. Buffett’s donation terms require the Gates Foundation to spend all his contributions plus an additional 5% of its net assets. Gates has committed to increasing the foundation’s spending from $6 billion in 2022 to $9 billion by 2026, with plans to spend $8.6 billion in 2024.
Berkshire Hathaway has outperformed the market in 2024, with shares up about 26% at present. This strong performance is attributed to effective operating and investment management, resulting in better outcomes than the average value stock. Approximately 60% of Berkshire’s value is in cash and equities, while the remaining 40% is tied to wholly owned businesses, including insurance and railroads.
Currently valued at over 1.6 times book value, the stock may seem expensive. However, with a deleveraged balance sheet for the first time in a long while, the premium valuation could be justified by the potential for significantly better returns in the future.
3. Waste Management (15%)
Waste Management is the leading waste hauler in the U.S. While not a high-tech enterprise typically associated with Bill Gates, it represents the type of stable, wide-moat business linked to Warren Buffett.
The Gates Foundation Trust holds more than 35 million shares of Waste Management, valued at approximately $7.3 billion currently. The stock has performed well in 2024 but experienced a dip following underwhelming second-quarter results. Nonetheless, the business’s long-term outlook remains robust, and the short-term prospects appear favorable as well. Management increased its full-year guidance for EBITDA and free cash flow in its earnings report.
Waste Management’s scale is a significant advantage, owning more landfills than competitors and operating high-density routes, allowing it to serve more clients efficiently. This position grants it pricing power and the cash flow necessary for growth through acquisitions. Its recent acquisition deal with Stericycle is expected to close in the fourth quarter.
The stock is currently trading at an EV-to-EBITDA ratio of less than 17, comparable to its closest competitors. However, with its market-leading scale and potential to add value and leverage operations through acquisitions, it is poised to outperform at this price.
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