Warren Buffett is one of history’s most successful investors. Born in Omaha, Nebraska, in 1930, Buffett went on to deliver one of the most incredible track records of money-making wins. Since purchasing a controlling stake in Berkshire Hathaway and becoming its CEO in 1965, the Oracle of Omaha’s company has delivered returns of more than 3,800,000% — enough to turn a $1,000 investment into over $38 million.
But while Buffett is best-known as a market-crushing value investor, his company’s stock portfolio actually has substantial exposure to artificial intelligence (AI) and other growth trends. If you’re looking to take a page out of the famously successful investor’s playbook, read on for a look at two AI stocks that account for 29.3% of Berkshire’s stock holdings.
How is Buffett playing the AI stock trend?
Keith Noonan: Following some volatile trading, Apple (NASDAQ: AAPL) has roared back to once again become the world’s most valuable company. With a market cap of roughly $3.44 trillion, the company actually has a significant lead on Nvidia and Microsoft — which are valued at $3.11 trillion and $3.08 trillion, respectively.
Coming in at roughly 28.8% of Berkshire Hathaway’s total stock portfolio, Apple is Buffett’s biggest overall bet by far and the cornerstone of the company’s investments in AI. But getting a read on Berkshire’s AI strategy has gotten a bit harder recently.
In the second quarter, Berkshire actually sold 389 million shares of Apple stock. The move reduced the investment conglomerate’s overall holdings in the tech giant by 49%.
With Apple stock reaching a new all-time high in the first half of the year, it’s not shocking that Berkshire opted to take some profits, diversify its portfolio weighting, and increase its cash pile. But there may be other reasons why Buffett and his analysts opted to sell some Apple stock.
In general, Berkshire’s recent moves and commentary suggest the company is taking a cautious approach to the stock market at large. There may also be some uncertainty as to what Apple’s position will be in the rapidly expanding, shifting world of artificial intelligence.
The iPhone has been an incredible performance driver, and it’s frequently made Apple the world’s most profitable business on an annual basis over the last decade. The company has dominated the mobile hardware space and continues to look very strong overall, but AI is a disruptive technology that could shake up industry positioning. On the other hand, the strength of the iPhone also gives Apple strong foundations for AI hardware and software initiatives.
With the release of the iPhone Pro 16 next month, Apple will take its first big step into mobile hardware tailored for artificial intelligence. AI-focused phones look to be the next major step forward for the mobile space, and could wind up being the next growth driver for the otherwise stagnant mobile market. No other company has stronger positioning in the overall mobile space, and the industry leader will have opportunities to leverage those foundations to score big wins in artificial intelligence.
AI could wind up being a powerful performance driver for Apple. But as Buffett’s recent moves suggest, it may be wise not to put all your eggs in one basket at this stage in the game.
Amazon has an edge in cloud computing
Jennifer Saibil: It has never made sense to bet against Amazon (NASDAQ: AMZN), and these days, it looks as strong as ever. Its e-commerce business is still healthy, and it’s making strides in streaming, as well as other segments, but what’s really driving interest these days is the incredible opportunities in AI.
Amazon isn’t one to miss trends. In fact, it’s more likely to grab trends and fail rather than lose the chance to become a leader in the next big thing. It’s done that plenty, and that’s why it now a master of many diverse and profitable businesses.
Amazon has been at the forefront of AI for years, using it to power its stores business with features like product recommendations and delivery organization. Generative AI is what’s creating excitement these days, and Amazon has its huge data stores to drive innovation and growth in this area. It offers a wide array of services for its Amazon Web Services clients, and it sees its edge in its three-tier system. The highest tier is services for developers to create their own large-language models (LLMs) with complete customization, the middle tier is for developers to use Amazon’s LLMs for a semi-custom experience, and the lowest tier is for smaller businesses to use turnkey generative AI systems for solutions like a total marketing campaign or product images and descriptions.
Management says there’s already been a robust response, with high usage of its products. And it sees this as just the beginning. CEO Andy Jassy said that over the past year and a half, Amazon has launched more than double the features of all other major cloud companies — combined. “This team is cooking,” Jassy said, “but we’re not close to being done adding capabilities for our customers’ interface.”
AI wouldn’t normally be on Buffett’s docket, and at just 0.5% of its total portfolio, Berkshire’s position in Amazon isn’t nearly as large as its Apple holdings. But Amazon as a company is backed up by its unbeatable e-commerce business and asset-light cloud computing segment that’s also the No. 1 leader in the industry. You get the best of both worlds with Amazon: the reliable Amazon name and tremendous AI opportunities.
Despite all this, Amazon stock tanked after its second-quarter earnings release, and it’s trading close to its lowest valuation in years. Wall Street didn’t love its sales guidance and slight miss on revenue in the second quarter. That makes this an unusual opportunity to buy this Buffett stock at a bargain price that you don’t want to miss.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in Apple. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett’s AI Bets: 29.3% of Berkshire Hathaway’s $316 Billion Stock Portfolio Is Held in These 2 Artificial Intelligence (AI) Growth Stocks was originally published by The Motley Fool
