Warren Buffett is the CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B)which has produced an annual return of 19.8% since Buffett took over in 1965. That could have turned a $1,000 investment into more than $42 million. The same investment in the S&P500 The index would have grown to just $308,115 over the same period.
Buffett’s simple long-term investment strategy is the secret to Berkshire’s success. He likes companies with steady growth, reliable profitability, strong management teams and shareholder-friendly initiatives such as dividends and share buybacks. You’ll never see him and his team pour money into the latest trends in the stock market – even one as powerful as artificial intelligence (AI).
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However, four stocks in Berkshire’s $292 billion portfolio of publicly traded securities are applying AI in unique ways to their existing businesses.
Domino’s Pizza (NYSE:DPZ) is the world’s largest pizza chain with more than 21,000 stores in 90 countries, serving more than 1 million customers every day. Berkshire just added this stock to its portfolio in the third quarter of 2024 (ending September 30), which could be a good sign for the pizza giant as the conglomerate has been a net seller of shares overall.
Domino’s is putting technologies like AI at the heart of its operations because they drive efficiency, which reduces costs and increases profits. Thanks to AI’s predictive capabilities, it can start making pizzas before a customer has even placed an order. This means that every pizza is cooked faster and reaches the customer faster than ever.
The company also uses Microsoft‘s Azure OpenAI platform for the computing infrastructure and software needed to create powerful AI assistants for its website, which can help customers with their orders. Finally, AI will streamline operations in every store by helping managers save time on daily tasks such as inventory management and employee scheduling.
Amazon (NASDAQ: AMZN) is the world’s largest e-commerce company, but most investors are more focused on its Amazon Web Services (AWS) cloud business, which is trying to dominate the three core layers of AI:
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Infrastructure: AWS is building data centers equipped with leading AI chips from suppliers like Nvidia and has designed its own chips, called Trainium and Inferentia. With Trainium, developers can save an estimated 50% on AI training costs compared to using other chips, and Amazon says it is producing more than expected because demand is so high.
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Great language models (LLMs): Amazon has developed its own family of LLMs called Titan, but the AWS Bedrock platform is also home to the world’s leading third-party LLMs, such as Anthropic’s Claude 3.5, and Metaplatforms‘ Llama 3.2. Developers use these ready-made LLMs to accelerate the buildout of their AI chatbots and software applications.
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Software: AWS has developed an AI virtual assistant called Q to answer questions about an organization’s internal data, and it can be asked to generate computer code immediately. Amazon says Q is the world’s most powerful assistant for software developers.
During the recent third quarter of 2024, Amazon said AI revenue within AWS grew by a triple-digit percentage compared to a year ago, and is growing more than three times faster than the cloud division at the same stage of its evolution.
Berkshire invested in Amazon stock in 2019 and Buffett has expressed regret for not identifying the opportunity sooner. Although it only represents 0.7% of the conglomerate’s portfolio, it can still deliver spectacular returns in the long term thanks to AI.
Berkshire acquired 400 million shares Coca-cola (NYSE: KO) between 1988 and 1994 at a cost of $1.3 billion. It still contains them all, and they are now worth $24.7 billion! AI was certainly not on Buffett’s mind when he decided to invest in the soft drink giant, but it is playing an increasingly important role in the company today.
Last year, Coca-Cola appointed a head of generative AI. So far, the company has used the technology to create marketing campaigns and a promotional version of its flagship soft drink Coca-Cola Y3000. It captures what the drink might taste like in the year 3000 by using AI to analyze large amounts of customer data.
In April, Coca-Cola also signed a five-year, $1.1 billion deal with Microsoft Azure to improve supply chains, marketing and productivity.
Apple (NASDAQ: AAPL) is Berkshire’s largest holding company. The stock used to account for almost 50% of the conglomerate’s entire portfolio, but Buffett sold more than half of his position in the first three quarters of 2024. We don’t know exactly why, but Buffett has sold at least some of stated the reason. before selling was that he thinks capital gains taxes could rise in the future, so it’s beneficial to take profits now.
The timing is certainly interesting. On the one hand, the S&P 500 is currently expensive with a price-to-earnings (P/E) ratio of 25.6, which is a 41% premium to its long-term average of 18.1. On the other hand, Apple is about to realize a huge opportunity within the AI space that could fuel a significant device upgrade cycle in the coming years.
The company recently started rolling out its Apple Intelligence software in the latest versions of its iPhone, iPad and Mac line of computers. It was developed in collaboration with OpenAI. It allows users to summarize messages and emails and generate text and images with one tap. Additionally, Apple’s Siri voice assistant will now leverage the knowledge of OpenAI’s ChatGPT, making it more powerful than ever.
Although Berkshire has been a big seller of Apple stock lately, Buffett expects it will remain the conglomerate’s largest holding company for a while. Therefore, the investing legend will likely still do very well if Apple’s AI efforts pay off.
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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. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Apple, Berkshire Hathaway, Domino’s Pizza, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
32.4% of Warren Buffett’s $292B Portfolio Is Invested in 4 Artificial Intelligence (AI) Stocks was originally published by The Motley Fool
