In one go, Berkshire Hathaway CEO Warren Buffett avoided technology stocks at all costs, reasoning that he had difficulty understanding complicated technology. The iconic investor was clear about his preferences for investing in “simple companies”, saying: “If there is a lot of technology, we will not understand it.”
However, over the years that position has changed. Today, more than 41% of Berkshire’s stock portfolio consists of two stocks poised to benefit from the artificial intelligence (AI) revolution.
1. Apple – $135 billion
Investors who have been following Berkshire Hathaway for some time know that the company is the largest AI stock Apple (NASDAQ: AAPL). While the initial bet in the iPhone maker was made by one of Buffett’s money managers, the so-called “Oracle of Omaha” quickly saw the appeal and began accumulating shares on his own. At the end of the first quarter, Buffett’s stake in Apple amounted to 789 million shares worth approximately $135 billion.
Although Apple has long been at the forefront of AI technology, the company has kept its plans for generative AI close to the vest until recently. At Apple’s Worldwide Developers Conference (WWDC) this week, the company pulled the lid off its plans and introduced “Apple Intelligence,” a comprehensive strategy to integrate generative AI functionality into a broad cross-section of its products and services. This includes features for messages, photos, notes, and even notifications.
The most notable development is that Siri is getting a long-awaited makeover. Not only does the digital assistant get a generative AI boost, but it can also interact with apps on the iPhone and other devices, making it much more useful along the way.
The company was quick to point out that all of this new functionality will come with Apple’s signature privacy built-in, with many of the AI processes running on the device, protecting user information. Access to ChatGPT is coming later this year, giving users the choice to enable the chatbot for specific purposes.
Wall Street is almost universal in its delight at Apple’s plans. The general consensus is that these improvements will lead to an upgrade of the ‘super cycle’. As many as 270 million of Apple’s 1.5 billion active iPhones are at least four years old, and this could be the catalyst behind the next iPhone purchasing wave.
Wedbush analyst Dan Ives predicts that Apple will sell between 225 million and 230 iPhones this year. With an average sales price of more than $900, the company could easily set a new record for iPhone revenue.
That would be good news for Buffett And thousands of other Apple investors.
2. Amazon – $1.8 billion
Buffett has admitted that he “always admired Jeff [Bezos],” Amazon‘S (NASDAQ: AMZN) former CEO. He also issued a mea culpa, saying he “messed up,” missing two opportunities to invest in the e-commerce and cloud computing leader. He cited the “miracle” of the company’s growth as putting him off because “if I think something is going to be a miracle, I don’t bet on it.”
At the urging of one of Buffett’s money managers, Berkshire Hathaway eventually corrected this oversight and now has a significant stake in Amazon. The company owns 10 million shares in a stake currently valued at nearly $1.8 billion.
Amazon has a long history of developing sophisticated algorithms to drive its business forward, creating tools to recommend products, map delivery routes, and maintain accurate inventory levels to meet demand.
Currently, the company offers a range of AI-powered products and services on its leading cloud infrastructure platform, Amazon Web Services (AWS). This represents one of the company’s biggest opportunities, as bringing in AWS with AI-powered features could be a catalyst for future cloud growth.
Is it time to buy?
Investors were recently alarmed that Berkshire sold 13% of its Apple shares earlier this year. Some believed that Buffett hated Apple, but Buffett reversed that idea. He said the current corporate tax rate – currently 21% – is historically low, compared to rates of 35% or 52% in recent history.
“I would say that at the end of the year I think it’s extremely likely that Apple will be the largest common stock holding that we have,” Buffett pointed out. He went even further, saying that “unless something really special happens,” Berkshire will still have a major position in Apple “when Greg takes over.” Buffett referred to his designated successor, Greg Abel. This suggests that Apple will remain a fundamental investor for Berkshire for the foreseeable future.
Apple’s recent foray into generative AI, pent-up demand, and the persistence of its product portfolio indicate the stock is still a buy.
The recent economic downturn and the ongoing battle against inflation have weighed heavily on Amazon, but the company is on the road to recovery. E-commerce activities have returned to growth and demand for digital advertising and cloud services is increasing. Despite recent challenges, it remains the world’s largest provider of e-commerce and cloud infrastructure services, which is why Amazon is also a buy.
The adoption of generative AI continues to accelerate, although no one is sure how high it will go. Estimates suggest that generative AI could have an economic impact of between $2.6 trillion and $4.4 trillion in the coming years, according to global management consultancy McKinsey & Company.
With a windfall of that magnitude, Buffett’s stake in these AI stocks could become much more valuable.
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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. Danny Vena has positions at Amazon and Apple. The Motley Fool holds positions in and recommends Amazon, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
Billionaire investor Warren Buffett has 41% of Berkshire Hathaway’s $332 billion portfolio in two unstoppable growth stocks powered by artificial intelligence (AI), originally published by The Motley Fool
