Millions of Americans own Nvidia (NVDA) stock indirectly through retirement accounts and index funds, which means that a lot more than the fortunes of individual tech investors is riding on the AI boom.
Nvidia’s rise has been the biggest catalyst for the broader market, but a warning issued by Warren Buffett, now the chairman emeritus of Berkshire Hathaway, in 1999 offers a timely reminder that transformative technology doesn’t automatically make every leading company a great investment at any price.
Buffett’s concern during the dot-com era was not whether technology would change society. It was whether investors could identify which companies would preserve a “truly durable competitive advantage”.
Buffett’s warning is especially relevant now because Nvidia has already delivered exceptional results. Since ChatGPT’s launch in late 2022, the company’s annual revenue has grown from roughly $27 billion to more than $215 billion, according to Seeking Alpha data, while its market value has expanded from about $420 billion to roughly $5.5 trillion.
For Nvidia shareholders today, the unresolved question is: how much of the company’s current AI economics can endure as competition and customer alternatives grow.
Buffett’s warning was about picking winners, not doubting technology
Buffett’s message from his 1999 shareholder letter was more nuanced than a simple warning against technology stocks.
More Warren Buffett:
He and longtime Berkshire Vice Chairman Charlie Munger fully accepted that new technologies could reshape the economy, writing that “our society will be transformed by their products and services.” The harder problem was deciding which companies would still command exceptional economics years later.
Interestingly, Buffett said Berkshire could not confidently identify which technology businesses possessed a “truly durable competitive advantage,” because rapidly changing industries made long-term competitive positions unusually difficult to predict.
When other investors believed they could make those calls, Buffett wrote that Berkshire would “neither envy nor emulate them.”
His concern was therefore not whether technological progress was real, but whether investors were confusing a powerful trend with certainty about the eventual winners.
Rising share prices could make that mistake even easier, particularly when, as Buffett put it, investors had “substituted hope for rationality.”
