Buffalo's Preferred AI Investments: These Artificial Intelligence (AI) Securities Account for 26% of Berkshire Hathaway's Asset Allocation
Buffalo's Preferred AI Investments: These Artificial Intelligence (AI) Securities Account for 26% of Berkshire Hathaway's Asset Allocation
When it comes to artificial intelligence (AI) stocks, you might not initially associate Warren Buffett with the game. Often referred to as the Oracle of Omaha, Buffett has built his fortune through the stock market, typically opting for established companies with a proven track record.
He tends to lean towards companies that might take a while to grow compared to today's typical AI stocks, but these businesses have stood the test of time. You'll find his investments in sectors like financial services, oil, and consumer goods, among others.
However, an inspection of his portfolio reveals that Buffett isn't completely alien to the AI realm. In fact, he has a significant stake in it through one of his primary investments, accompanied by a smaller holding. These two stocks make up 26% of Berkshire Hathaway's $271 billion portfolio at the moment.
While Buffett acquired these stocks a few years ago, primarily for reasons unrelated to AI, he has remained invested as this technology gained traction and the companies boosted their involvement in it. Let's delve into Buffett's favorite AI stocks and consider whether they're worth considering for yourself too.
1. Apple
Apple, represented by the ticker AAPL (-1.32%), forms over 25% of Berkshire Hathaway's portfolio and is one of Buffett's largest investments. Alongside four other companies (American Express, Bank of America, Coca-Cola, and Chevron), it forms 70% of the portfolio's fair value.
Buffett has offloaded shares of Apple in recent quarters, but it's crucial to understand the context. He's held the stock since 2016, and it has soared more than 700% during its tenure in Buffett's portfolio. Buffett's statements during the Berkshire Hathaway shareholder meeting in May suggested that his sale of the top-performing stock was to lock in profits at the current capital gains tax rate, anticipating a potential increase. This, coupled with Apple's substantial size in the portfolio, indicates that Apple remains a Berkshire Hathaway favorite.
We're all familiar with Apple's best-selling devices, such as the iPhone and Mac. Its latest growth driver is offering services to its vast user base, resulting in record-breaking service revenue each quarter.
Now, we can add AI to the mix as another potential growth driver for Apple. The company is introducing Apple Intelligence across its platform, which includes an extensive collection of generative AI features to help users in both professional and leisure time. This could further enhance Apple's already extraordinary products, reinforcing the company's competitive barrier (Buffett appreciates solid barriers).
Meanwhile, Apple isn't entirely dependent on AI for its success, making it an attractive choice for cautious investors seeking some exposure to this hot technology without much risk. Furthermore, trading for 30x forward earnings estimates today, the company seems like a bargain, considering its stellar performance history.
2. Amazon
Amazon, represented by the ticker AMZN (-1.45%), is just under 1% of Berkshire Hathaway's portfolio but has been a consistent presence since 2019. One of Buffett's investment managers initially made the move to purchase the stock, while Buffett himself has been a long-time admirer of the company and even expressed regret over not purchasing the stock earlier.
"It's far surpassed anything I could have imagined could be done," he said in a CNBC interview back in 2018. "I had no idea that it had the potential. I blew it."
Amazon has enjoyed a significant role in the AI spectrum today because the company is leveraging AI to enhance its own operations and, through its cloud computing unit, provides AI products and services to others. Let's start with e-commerce.
AI is assisting Amazon in streamlining its fulfillment network, leading to improved operational efficiency and reduced costs. The company recently opened a fulfillment center featuring its newest robotics innovations and expects to cut costs by 25% long-term.
However, the area where Amazon could potentially see significant gains immediately is through its Amazon Web Services (AWS) business. AWS supplies clients with everything they need for their AI projects, from hardware to a fully managed service that allows clients to customize top-tier large language models to their specific needs. AWS is also present in the area of applications, offering Amazon Q, a generative AI assistant for software development.
These advancements have helped to propel AWS to an annualized revenue run rate of $110 billion, demonstrating that Amazon can monetize its AI investment.
So, who should follow Buffett into this AI bet today? Amazon's history of solid earnings growth should appeal to cautious investors, while its major moves in AI will entice more aggressive investors. This makes Amazon an excellent choice for all investors seeking a potential AI win in the long term.
Buffett's investment in Apple's stock, a significant portion of Berkshire Hathaway's portfolio, indicates his interest in the tech giant's foray into AI. Apple's introduction of Apple Intelligence, featuring generative AI features, could further enhance its products and reinforce its competitive barrier, appealing to cautious investors seeking some exposure to AI without much risk.
Buffett's long-time admiration for Amazon, despite its meager 1% presence in Berkshire Hathaway's portfolio, underscores the company's significant role in the AI spectrum. Amazon's use of AI in streamlining its fulfillment network and in its cloud computing unit, AWS, has demonstrated its potential to monetize this investment, making it an attractive choice for all investors seeking a potential AI win in the long term.