Berkshire Hathaway, led by Warren Buffett, has allocated a significant portion of its $287 billion stock portfolio to artificial intelligence, with 24.1% being invested in two specific AI-focused stocks.
Berkshire Hathaway (BRK.A -0.79%, BRK.B -0.39%) CEO Warren Buffett is one of history's most accomplished investors. Under his leadership, Berkshire Hathaway has climbed to become the world's ninth-largest company, with a market capitalization of approximately $959 billion today.
Besides its numerous wholly and partly owned subsidiary businesses, Buffett's conglomerate also possesses a stock portfolio worth $287 billion, as of the current writing. Despite being recognized as a value investor, this portfolio includes a substantial exposure to the development of artificial intelligence. Thus, let's delve into two of the most prominent AI stocks within the Berkshire Hathaway portfolio.
Apple is Buffett's largest investment and leading AI venture -- but there's a twist
*Matthew Goodwin*: Apple, accounting for 23.2% of Berkshire Hathaway's equity portfolio value, is the conglomerate's largest stock holding and, consequently, its top AI stock holding. Berkshire Hathaway's investment in Apple has yielded remarkable returns since the company initially bought shares in the first quarter of 2016: Apple shares have delivered a total return of over 800%.
The tech giant recently unveiled its Apple Intelligence software with its iPhone 16 smartphones, emphasizing AI as a key selling point for its upcoming mobile devices. Apart from its significant sales and profit contributions, Apple's dominance in the mobile hardware market offers several competitive advantages in the AI arena.
With an extensive and dedicated user base, Apple has access to vast amounts of valuable data and a loyal customer base that can be targeted with add-on services. Notably, Apple's software and services business is projected to generate more than $100 billion in revenue annually.
Yet, Berkshire Hathaway has exhibited some intriguing behavior with Apple shares lately. Berkshire Hathaway's third-quarter report announced that the company had once again sold a substantial amount of Apple stock during the period. The conglomerate currently retains approximately 296 million shares of Apple stock, a decrease from its peak holding of approximately 907.6 million shares.
So why is Berkshire Hathaway reducing its stake in Apple? Investors will need to speculate on this matter. It appears that Buffett and his analysts may be becoming more conservative in their stock market expectations, as the S&P 500 index has gained roughly 21% this year. Consequently, Berkshire has opted to reduce its stock holdings and bolster its cash reserves instead.
The potential for overvaluation and a volatile macroeconomic and geopolitical landscape might be influencing Berkshire's tactical shift. Although artificial intelligence presents exciting growth prospects, Berkshire's recent Apple stock transactions serve as a reminder of the importance of diversification.
The tiny tech gamble
*Samantha Lee*: Amazon, representing only 0.7% of Berkshire Hathaway's stock holdings, is no match for Apple's prominence in the portfolio. Buffett has revealed that one of his investment managers made the investment in Amazon, although the portfolio has benefited from owning this promising AI stock.
While many still associate Amazon primarily with e-commerce, the company's Amazon Web Services (AWS) segment has emerged as the global leader in cloud infrastructure, with a 31% market share. Despite Microsoft's Azure holding a close second place with a 25% market share, AWS remains a formidable force.
AI has become a crucial factor in the competitive strategies of major cloud service providers, with Amazon at the forefront. With a wide array of AI services catering to various needs and budgets, AWS is also developing its own AI processors, enabling it to offer a broader pricing spectrum to its clients.
Over the past few months, CEO Andy Jassy has emphasized the significant growth opportunities in this field. "Approximately 90% of global IT spending is still on-premises," he stated in August. "If you believe that the equation is going to shift, which I do, there's considerable growth potential ahead for AWS as the market leader." He also mentioned, "I also believe that generative AI itself and AI as a whole will be quite substantial."
Amazon's AI capabilities extend beyond AWS and generative AI. The company utilizes AI to analyze its unmatched shopper data, driving its e-commerce sales by offering improved side-by-side comparisons and recommendations. This data supports its logistics network, ensuring efficient and cost-effective delivery of products to customers.
In addition, Amazon uses AI for its digital advertising business, offering partners advanced data and advertising exposure to shoppers searching for their products. Amazon's AI potential is still unrealized, making it an exciting area for investors to explore.
Despite Berkshire Hathaway's significant investments in tech giants like Apple and Amazon, the conglomerate also recognizes the importance of diversifying its finance and investing strategy. Therefore, Berkshire might explore other opportunities in the finance sector to balance its portfolio and maximize returns.
In terms of investing, Berkshire's diversified approach allows it to capitalize on various industries and technologies, including artificial intelligence (AI). By maintaining a balance between tech stocks, like Apple and Amazon, and other potential growth areas, Berkshire ensures it is well-positioned for the future of finance and technology.
