Warren Buffett Bets on the Digital Economy With New VeriSign Buy

Key Points

• Warren Buffett is not known for investing in technology stocks; however, he did find a strong enough trend lately in the digital economy to land him in VeriSign stock.
• Wall Street analysts agree with the thesis behind these themes, so they see a double-digit upside ahead.
• Recent financial strength has attracted other institutional buyers into the stock as well.

Warren Buffett is known for advising investors to stay within their circle of competence, which means not buying or even considering businesses or industries that the investor cannot understand. He has also said that he missed out on many big opportunities in the technology sector because he didn’t truly understand the industry dynamics.

However, being an endless student of the game, he has decided to allocate some of his resources to the future of the global economy. What many call the creator economy, or the digital economy, is becoming a more significant factor in today’s investment trends, and that is something Buffett has successfully spotted – and thoroughly understood - in his recent purchase.

After buying into shares of VeriSign Inc. NASDAQ: VRSN, Warren Buffett seems to have found his version of the best value stock that is tapped into the future of the global digitalization of the economy and where more and more participants will look to create an online presence and audience. Here is why it’s not too late to piggyback on Buffett’s idea and why VeriSign makes a lot of sense as a potential buy today.

VeriSign Stock: The Building Block of the Digital Economy

With this new economic trend, there are a few players that come into consideration for investors, and for good reason. For example, Apple Inc. NASDAQ: AAPL comes in as the hardware provider for these new creators and workers to set up “shop” through iPhones and laptops.

Then, Alphabet Inc. NASDAQ: GOOGL provides the infrastructure to connect buyers and sellers to needs and services, an absolute necessity in this theme. However, there is a middleman in this tendency that hasn’t been mentioned, and that is the licensing or domain aspect.

Investors can think of VeriSign as a real estate developer, where the land (hardware) can only be turned into a cash-flowing home (online business) through a development process. This is where VeriSign and its domain registration and security services come into play for the content economy.

This might also be why Buffett saw enough potential in the company’s future to consider buying it. However, it looks like Buffett isn’t the only one willing to share in the optimism for this stock’s potential upside, as those from Nordea Investment Management decided to stack up to a $81 million position in the company as of January 2025.

Now that the stock trades at a new 52-week high, investors might wonder whether it is worth it to buy it now or wait for a potential pullback to bring relative discounts in the company’s price.

Wall Street Is Bullish on VeriSign Stock Today

The answer to the question of whether VeriSign stock is too high right now can be found not only in Buffett’s purchase but also in the ways that Wall Street analysts look at the stock right now. For example, those from Robert W. Baird decided to boost the stock from a neutral rating up to an outperform rating.

With this new rating came a new valuation as well, where they saw the stock at $200 previously; now, as of December 2024, the new targets lie closer to $250 a share. The stock would have to rally by as much as 19% from where it trades today to prove this new view right.

The advantage for investors is that analysts don’t widely cover VeriSign. This means that following Buffett's and other institutional purchases, new analyst ratings could highlight an even greater upside for the stock in the months ahead.

Then comes Warren Buffett’s favorite part, the stock's discount. With a price-to-earnings ratio (P/E) of only 26.4x, VeriSign offers a significantly steep discount to the computer sector’s average 239.0x valuation. Investors will soon be able to point out that insiders are also recognizing this discount.

As of the latest quarterly earnings results, VeriSign management decided to buy back as much as $1.1 billion worth of stock, sending a message to the broader markets that the stock is cheap today and expected to rally soon.

More attractive, however, is the free cash flow (operating cash flow minus capital expenditures) of $852 million for the year, not a common achievement for a relatively young company such as VeriSign, but it is one of the main financial metrics that drive future potential compounding in the stock price as well as company valuation.