Artificial intelligence (AI) is still at the top of investors’ agendas. With the belief that this could be a disruptive technology, it makes sense that people would want to gain exposure to this trend in their portfolios.
This also applies to the great Warren Buffett, who has historically been reluctant to invest in technology. Berkshire Hathawaythe massive conglomerate he leads has 29% of its publicly traded portfolio in one giant AI stock.
Read on to find out which company this is and whether or not this is a smart investment.
The Apple Advantage
One of Warren Buffett’s most successful investments is a recent one. I’m talking about his incredibly lucrative bet on Apple (NASDAQ: AAPL)The iPhone maker’s shares have soared in recent years.
The Oracle of Omaha decided to to shorten his position meaningfully in the three-month period ending in June. Nevertheless, Apple is still the largest position in the conglomerate’s portfolio.
Nvidia gets all the attention, as it is the main poster child for the AI ​​boom. But investors should not forget the already dominant tech giants that have long been at the forefront of digital trends. Apple is one of those companies.
As usual, the Cupertino company was late in revealing its AI strategy. But it certainly caused a stir.
Called Apple Intelligence, the overarching goal is simply to make the company’s various hardware devices more useful to consumers. Notable features include an improved Siri assistant, improved writing tools, and the ability to generate images. Newer products running the latest software will have these AI features enabled, which will be integrated with ChatGPT.
Investors may be looking for companies that can introduce completely new AI-related products and services. But I think that is the wrong way to look at things. Instead, companies that are already leaders in their respective sectors are likely to use AI to strengthen their current competitive positions.
Here, Apple has an advantage. It has over 2.2 billion active devices worldwide, creating unparalleled distribution opportunities to release its AI features with immediate adoption. Given that users are locked into the Apple ecosystem, I have confidence that the company will be successful with this new initiative.
But at the end of the day, I still see one main goal with the company’s AI push: sell more iPhones. Apple is still a smartphone company, as 46% of its revenue in the third quarter of 2024 (ended June 29) came from iPhone sales. Perhaps Apple Intelligence will encourage more people to upgrade to the latest models.
“I just want to say that we’re really excited about Apple Intelligence and the value we’re going to deliver to users, and we think that’s another compelling reason to upgrade,” CEO Tim Cook said during the company’s 2024 quarterly earnings call.
Should You Buy Apple Stock?
Apple is an obvious way to bet on the AI ​​trend. It’s a competitively advantaged and extremely profitable company. But to be clear, I don’t think the stock is a smart buy today.
At the time of writing, shares are trading at a price-to-earnings ratio of 34. That’s a substantial premium over the trailing five- and ten-year averages. Paying such a high price only makes sense if Apple’s growth accelerates in the coming years. But given that this is a very mature company today, that’s unlikely.
The average investor shouldn’t blindly follow the actions of the greats, not even Warren Buffett. The fact that the investment legend has reduced his position could be a clear sign that he no longer believes Apple is an attractive opportunity. I think this is the right view to have, which means investors should consider buying the stock now.
Should You Invest $1,000 in Apple Now?
Before you buy Apple stock, here’s what to consider:
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway and Nvidia. The Motley Fool has a disclosure policy.
29% of Warren Buffett’s Portfolio Is Invested in This 1 Monster AI Stock was originally published by The Motley Fool
