Top 5 Stocks Warren Buffett Just Bought

4. Snowflake Inc. (NYSE:SNOW)

Berkshire also jumped on the IPO of data storage and analytics company Snowflake Inc. (NYSE:SNOW) during Q3, buying 6.13 million shares to take a 2.21% ownership stake in the company. Snowflake was the most popular Q3 IPO among the select group of hedge funds tracked by Insider Monkey, being owned by 59 of them.

Many analysts and investors are beginning to question the market’s rationality after the blowout success of several of those recent IPOs, and Snowflake is probably the starkest example yet of a valuation ($83 billion) that doesn’t seem to line up with reasonable expectations that will play out any time soon. McLain Capital took aim at the stock’s valuation in its Q3 investor letter, stating:

“ […] with an $85bln fully diluted market capitalization on a mere $400mm in trailing twelve month sales, Snowflake is valued at an astronomical 212x revenue. Assuming Snowflake will, in 10 years, trade at a generous 30x earnings and earn 15% net margins, revenues would have to grow by a factor of 122x for investors to earn just a 10% annual rate of return. Notably, these assumptions would require that Snowflake grow revenues significantly faster than any non-biotech public company has in history – calling that a heroic assumption would be an understatement. We have no current position in Snowflake.”