Bill Gates has sat near the top of the list of the wealthiest people in the world for decades. The Microsoft(NASDAQ: MSFT) co-founder became the first-ever centibillionaire in 1999, 18 years before anyone else would reach that level of wealth. Around that time, he and then-wife Melinda established a non-profit aimed at improving healthcare and reducing poverty around the world.
Over the last 25 years, Bill Gates has donated much of his wealth to the Bill & Melinda Gates Foundation, and he plans to donate almost the entirety of his assets to charity over the course of his life.
He isn't alone in that pledge to give away much of his wealth. His friend Warren Buffett is also a major contributor to non-profits, including the Gates Foundation. Buffett even served as a trustee for the foundation until 2021, likely influencing how the trust invests its assets.
The trust's equity portfolio is currently valued at around $49 billion. Over two-thirds of that amount, about 69%, is invested in just three stocks. Let's take a closer look at them.
1. Microsoft (31%)
Gates himself is one of the biggest donors to the foundation, so it's probably not a surprise that one of the trust's biggest holdings are the Microsoft shares he regularly transfers to the non-profit. Gates' last major donation was in 2022 and worth about $20 billion. It appears that a large chunk of that donation came in the form of Microsoft shares, because the trust added about 38 million shares to its portfolio in 2022, worth about $8.9 billion at the time.
The trust still had around 35 million shares as of the end of the 2024 second quarter. Those shares are worth about $15 billion today. Microsoft's stock has been on a tear since that donation in July 2022. Shares are up roughly 65% since the start of that month, and there's a clear reason why. Microsoft has been able to capitalize on the growing amount of spending on artificial intelligence.
It was an early investor in OpenAI, a pioneer in generative artificial intelligence. That made Microsoft's cloud platform, Azure, the top choice for developers looking to use new large language models to create applications. Microsoft's also been able to incorporate OpenAI's model into its own AI agent, dubbed Copilot, which has proven popular across its portfolio of enterprise software solutions.
As a result, Microsoft has seen Azure revenue accelerate over the last two years, and its enterprise software business continues to produce more and more cash. The future looks bright, too. Management expects Azure revenue to accelerate in 2025 as more of its capital investments in new data center capacity come online.
The stock trades at a premium to the overall market, with a forward price-to-earnings (P/E) of 32.7. But given the strong free cash flow from its enterprise software business, and its incredible position in two areas of the AI growth story (cloud and software), the stock is worth the premium price.
2. Berkshire Hathaway Class B Shares (23%)
Warren Buffett has made an annual donation to the Gates foundation since 2006. That donation comes in the form of Berkshire Hathaway Class B(NYSE: BRK.B) shares. Buffett set aside 10 million total shares to donate in 2006, which would be 500 million shares after the 50-for-1 stock split in 2010. His 2024 donation came to 9.9 million shares, worth about $4 billion at the time of the donation.
As of the end of Q2, the Bill & Melinda Gates Foundation Trust had 24.6 million shares in its portfolio. Interestingly, Buffett's donation has a stipulation that the foundation must spend all the equivalent of his annual donation each year, plus 5% of the foundation's remaining assets. Nonetheless, the trust has managed to accumulate shares of Berkshire Hathaway, and it's worked out well. Since Buffett's first donation in 2006, Berkshire Hathaway has outperformed the S&P 500 total return by an average of 0.8% per year.
Berkshire Hathaway has shown strong operating results recently. Income from core operations (non-investment gains) climbed to $22.8 billion in the first half of 2024, up from $18.1 billion in the same period last year. But Buffett's taken steps to reduce Berkshire's exposure to the stock market, making several big sales throughout the year. Buffett has simply added to his position in short-term Treasury bonds as he presumably waits for a good investment opportunity.
Berkshire shares currently trade for a historically high valuation of 1.6 times book value. The price is high enough for Buffett to slow down his share repurchase activity. However, investors should also consider that Berkshire is fully deleveraged (it has cash to cover its insurance float), and the assets on its balance sheet could become much more valuable in the near future if new opportunities present themselves for Berkshire. As such, the stock may be worth the premium today.
3. Waste Management (15%)
Waste Management(NYSE: WM) isn't exactly the kind of stock you might associate with a tech billionaire like Bill Gates. It is, however, exactly the kind of stock that investors associate with a value investor like Warren Buffett: a simple, boring business with a strong moat protecting it.
Waste Management is the largest waste hauler in the United States. It has cemented that position through strategic landfill ownership and smart acquisitions. Its most recent acquisition, Stericycle, adds to its position in medical waste disposal. The deal has passed regulatory approval and should close before the end of the year.
Its hefty size gives Waste Management an important advantage in developing highly dense routes, which cuts down on overall costs. Focus on operating efficiencies, technology investments, and pricing strategy allowed it to reach 30% EBITDA margin for the first time in company history during Q2. That said, many investors were disappointed by the second-quarter results earlier this year. That set shares back considerably after a strong first half of the year.
Investors with a long-term horizon had a lot to like about management's commentary from Q2. In fact, management reiterated its full-year outlook for EBITDA and free cash flow during the earnings call. With the potential for stronger profit margins going forward, there's a lot to like about the business.
The Gates Foundation owns about 35 million shares of Waste Management as of the end of Q2. Those shares are worth over $7 billion today. With an enterprise value-to-EBITDA ratio of close to 17, shares are priced slightly above their historic average. However, that multiple is right in line with some of Waste Management's biggest competitors. So, you can pay the same price for the market leader as you would for less compelling businesses.
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Adam Levy has positions in Microsoft. The Motley Fool has positions in and recommends Berkshire Hathaway and Microsoft. The Motley Fool recommends Waste Management and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
