The “Oracle of Omaha” has nearly $189 billion of Berkshire Hathaway's invested assets riding on four of the top artificial intelligence (AI) stocks.
When it comes to investing greats on Wall Street, Berkshire Hathaway (BRK.A 1.06%) (BRK.B 1.21%) CEO Warren Buffett is on a pedestal himself. Since taking the reins at Berkshire in 1965, he has overseen a total return of 5,028,429% in his company's Class A shares ( BRK.A ), as of the closing bell on July 10. On an annualized basis, the “Oracle of Omaha” practically doubled the total return including dividends paid by the benchmark. S&P 500 Since the mid-1960s.
Buffett's formula for success primarily involves buying shares in brand-name, time-tested businesses with well-defined competitive advantages. While the strategy puts a heavy emphasis on value stocks, occasional growth stocks wind up in the 44-stock, $410 billion portfolio that Buffett and his team at Berkshire Hathaway oversee.
Berkshire Hathaway CEO Warren Buffett. Image Source: Motley Fool.
What is particularly surprising is that Warren Buffett and his cohorts have bet big, at least unwittingly, on the artificial intelligence (AI) revolution.
AI involves the use of software and systems for tasks that are normally supervised or performed by humans. The ability of these systems to learn and evolve over time, becoming more proficient at their tasks or perhaps learning new skills, is what gives AI its widespread utility.
As of the closing bell on July 10, 46% ($188.8 billion) of the $410 billion portfolio that Warren Buffett oversees at Berkshire Hathaway was invested in four top-ranked AI stocks.
Apple: $183.9 billion (44.8% of invested assets)
The bulk of Buffett's exposure to artificial intelligence rests on the shoulders of tech stocks apple (AAPL -2.32%)That makes up about 45 percent of Berkshire's $410 billion in invested assets.
In June, during the company's annual Worldwide Developers Conference, Apple unveiled what it called “Apple Intelligence.” While Apple has been leaning on various AI solutions for years, it has plans to bring ChatGPT-powered chatbot solutions to its operating systems as well as making its voice assistant Siri much more intuitive.
However, Oracle of Omaha and his team didn't buy into Apple because of its role in the future of AI. More than likely, Buffett and his closest advisers recognize its dominance in smartphones — 50 percent or more of the domestic smartphone market since Apple introduced 5G-capable iPhones in late 2020. — as well as its success in transitioning to a service-based model driven by high-margin subscriptions.
While Apple certainly deserves a premium given its first-mover advantages and innovative innovations, its growth engine has stalled in recent years. While it's possible that AI will be the catalyst that reignites growth, Apple's $674 billion in stock buybacks since its 2013 launch has done the heavy lifting of late.
BYD: $2 billion (0.5% of invested assets)
Another artificial intelligence stock that Oracle of Omaha and its team is betting big on is a China-based electric vehicle (EV) maker. BYD (BYDD.F 1.84%). Berkshire owns about 65.8 million shares in BYD, equivalent to a 6% stake in the company, worth about $2 billion.
New vehicles are increasingly relying on technology and AI to improve safety and comfort for drivers. For example, in mid-January, BYD launched its Xuanji Architecture, which is designed to help drivers with automatic parking and other advanced driving assistance technologies.
BYD is also working with Chinese regulators to test Level 3 autonomous driving on high-speed roads in the city of Shenzhen. American rival Tesla Despite constant promises from CEO Elon Musk that Level 5 autonomy is “about a year away.”
What is particularly interesting about BYD's production ramp is that it is now selling more battery-EVs worldwide than Tesla. While Tesla maintains its first-mover advantage in North America, BYD's surge in China has undercut all other competitors.
Image source: Amazon.
Amazon: $2 billion (0.5% of invested assets)
The third stock making another multi-billion dollar bet on AI is none other than the e-commerce legend. Amazon (AMZN -2.37%). The 10 million shares of Amazon stock held by Berkshire have a market value of about $2 billion.
While most investors are familiar with Amazon for its dominant online marketplace, cloud infrastructure service platform Amazon Web Services (AWS) is its most important operating segment. Generative AI solutions can be relied upon by businesses in AWS to deploy virtual chatbots or assistants and build/scale large language models (LLMs).
The best part about enterprise cloud spending is that we're still in the early innings of its expansion. It's amazing news that AWS has already surpassed $100 billion in annual run-rate sales, and is Amazon's highest-margin segment.
The company also maintains other high-growth sub-segments. Advertising services and subscription services continue to post double-digit growth. Attracting 2.5 billion monthly unique visitors to its website has helped drive ad sales, while a growing library of content, which now includes Thursday Night Footballhas almost certainly increased the overall number of global Prime subscribers.
Snowflake: $842 million (0.2% of invested assets)
The fourth AI stock that together with Apple, BYD and Amazon accounts for 46% of Berkshire Hathaway's $410 billion in investable assets is the cloud data warehousing company. Snowflake (Snow 0.49%). Like Amazon, Snowflake was added to Berkshire's portfolio by Buffett's investment “lieutenants,” Todd Combs and Ted Weschler.
Last year, Snowflake acquired Neeva, a company that leverages creative AI solutions within the cloud to improve search. Snowflake plans to rely on various generative AI solutions within its data cloud to allow its customers to easily analyze data and build, train and deploy LLMs.
Beyond its AI ties, Snowflake's allure as an investment has long been its strong competitive advantages. Snowflake has built its data cloud on top of the world's leading cloud infrastructure service platform. While sharing data on competing platforms can be difficult, it's a breeze with Snowflake.
Similarly, Snowflake has abandoned the subscription-as-a-service model in favor of a pay-as-you-go approach. The transparency of businesses paying only for Snowflake Compute Credits and data storage space has helped it retain clients and steadily grow its base of large businesses.
However, Snowflake a Expensive Stocks certainly don't fit the mold of traditional Warren Buffett investing. At 13 times forecast sales in the current fiscal year, and about 139 times earnings per share (EPS) next year, Snowflake Very To prove to Wall Street.