You won't catch Warren Buffett chasing the latest stock market trend, but many of the companies in Berkshire Hathaway's portfolio are nonetheless benefiting from AI.
Warren Buffett was born in 1930, and bought his first stock at the age of 11. By 1965, he was running his own investment company Berkshire HathawayWhich he is leading even today.
Buffett has led Berkshire to a total return of 4,384,748% over the past 58 years, enough to turn a $1,000 investment into more than $43.8 million. A single investment in S&P 500 The index would be worth just $312,230 over the same period.
Berkshire's incredible run of success stems from a simple strategy. Buffett likes to own companies with steady growth, stable profits and strong management teams. They especially like companies that return money to shareholders through dividends and stock buybacks. One thing he has never done is chase the latest stock market trend, whether it's the Internet, cloud computing or now, artificial intelligence (AI).
At the same time, many Berkshire-owned stocks have turned their attention to the AI revolution. The two of them today account for 40.2% of the total $362 billion portfolio of publicly traded stocks and securities.
Image Source: Motley Fool.
1. Amazon: 0.5% of Berkshire Hathaway's portfolio
It was e-commerce. AmazonOf (AMZN -1.07%) The core business when it was founded in 1994, but the company has since expanded into cloud computing, streaming, digital advertising, and AI. Berkshire didn't buy Amazon stock until 2019, and Buffett has often lamented not recognizing the opportunity sooner. Today, Amazon's valuation of $1.9 trillion makes it the fifth largest company in the world.
Amazon Web Services (AWS) is the world's largest provider of cloud services by revenue. It offers hundreds of solutions to help businesses thrive in the digital age, and has also become the distribution platform for many of Amazon's AI initiatives. CEO Andy Jessee wants to dominate the three core layers of AI: infrastructure (chips and data centers), large language models (LLMs), and customer-facing AI applications.
Like most cloud providers, AWS offers customers the infrastructure they run. Nvidia’s industry-leading graphics chips (GPUs), designed to process AI workloads. However, it also designs its own chips, and Jassy says its latest Trainium 2 hardware is in strong demand because of its attractive pricing and performance.
AWS also continues to expand its Bedrock platform, which is home to a growing number of ready-made LL.M. Building an LLM requires a considerable amount of data and financial resources, so using the existing model can accelerate the development of AI applications. Amazon created its own family of models called Titan, but AWS customers can access models from well-known startups like Anthropic, in which Amazon recently invested $4 billion.
To cover the third and final layer, Amazon recently launched an AI virtual assistant called Q. It is capable of analyzing any business's internal data to provide useful insights, and it can also write, test, and debug computer code to accelerate releases. of new software. It is the ultimate productivity tool for AWS customers.
Amazon grossed $574 billion in revenue last year, more than any of its tech peers in the trillion-dollar club. However, while the company has been profitable over the past three quarters, it has historically generated consistent losses as it has supported heavy investment in growth. Combined with the absence of a dividend or buyback program, it doesn't tick many of Buffett's usual boxes.
That may explain why Amazon stock represents just 0.5% of Berkshire's portfolio. However, the party may wish to have a larger stake in the coming years as the AI opportunity unfolds.
2. Apple: 39.7% of Berkshire Hathaway's portfolio
Buffett certainly didn't hesitate much when buying apple (AAPL -0.69%) Stock Berkshire first invested in the iPhone maker in 2016, and has since amassed about $38 billion in shares. Thanks to a significant increase in the stock price, Berkshire's stake in Apple is now worth a total of $143.5 billion, even after discounting the recent sale of 13% of the conglomerate's position.
The iPhone is Apple's flagship product, but it has an entire portfolio of hardware successes, including the iPad, Watch, Mac computers, and iPhone accessories like AirPods. Apple also has a growing number of services, including Apple Music, Apple News, Apple TV, and iCloud, to name just a few. These services are typically subscription-based and have higher profit margins than Apple's hardware products, so they're often the focus of attention for investors.
Apple didn't become a $2.8 trillion company standing still, and while it has been less vocal about its AI ambitions than other tech giants, it could have a significant impact on the emerging industry. There was an early hint inside the latest iPhone 15 Pro. It features a new Apple-designed A17 Pro chip, which boosts the smartphone's ability to process AI workloads, such as the Siri voice assistant and the automatic keyboard function.
In March, rumors started flying that Apple was in partnership talks with leading developers of AI chatbots. the alphabet (Google) and OpenAI. These applications can help Apple users quickly create content from emails to photos on their devices. They can also become virtual assistants capable of everything from answering complex questions to offering gift suggestions.
If history is any guide, Apple could charge billions of dollars to these companies to install its AI chatbots on its 2.2 billion active devices worldwide. After all, Apple already charges Alphabet about $18 billion a year to set Google as the default search engine on its Safari browser — a similar fee for Alphabet's Gemini chatbot wouldn't be surprising. More about Apple's AI plans will be revealed at the Worldwide Developers Conference in June.
Notably, Apple meets most of Buffett's criteria. It delivers steady earnings growth most years, it's highly profitable, and its CEO Tim Cook regularly earns Buffett's praise. In addition, Apple pays a regular dividend, and it just announced a new stock buyback program worth $110 billion, the largest in corporate history.
So why did Berkshire recently sell its 13 percent position in Apple? Buffett says this was for tax reasons (he speculates that corporate taxes may rise in the future), but he reassured investors that Apple will likely become Berkshire's largest position by the end of 2024. But will remain.