Warren Buffett is considered one of the best investors in history. Since 1965, he has steered the Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) investment company to a mind-boggling 4,384,748% increase in value. The benchmark S&P 500 index is up just 31,223% over the same period.
Buffett's investing strategy is simple. He likes companies with steady growth, strong profitability, and high-performing management teams. He's especially fond of those that return money to shareholders through dividends and stock buybacks. That strict criteria is why so few technology stocks have made their way into Berkshire's portfolio.
A group of companies dubbed the "Magnificent Seven" have captivated investors over the past year with their strong performance and whopping $13.5 trillion in combined valuation. The seven stocks include:
- Apple (AAPL -0.35%)
- Amazon (AMZN 3.43%)
- Nvidia
- Microsoft
- Alphabet (parent company of Google)
- Meta Platforms
- Tesla
Berkshire owns just two of the above names, but they account for 43.5% of the conglomerate's $372 billion publicly traded stocks and securities portfolio.
Image source: The Motley Fool.
1. Amazon: 0.5% of Berkshire's portfolio
Amazon is the world's largest e-commerce company, but it also dominates the cloud computing industry with its Amazon Web Services (AWS) platform, and it has a fast-growing presence in both streaming and digital advertising. Berkshire bought Amazon stock in 2019, and while it only accounts for a small fraction of the conglomerate's portfolio, Buffett has often expressed regret for not buying more.
Investors are firmly focused on artificial intelligence (AI) right now, and Amazon is quickly becoming a leader in that field, too. As the largest cloud platform, AWS is well-positioned to distribute every layer of AI to thousands of businesses worldwide.
Amazon developed its own data center chips called Trainium and Inferentia, which help set its AI infrastructure apart from many other operators who rely solely on Nvidia's graphics processing units (GPUs). The company also created its own large language models (LLMs) under its Titan program, which developers can use to build their own AI applications.
Finally, AWS offers businesses some ready-made AI applications. They include CodeWhisperer, which helps programmers write code more quickly, and Amazon Q, a generative AI-powered virtual assistant. Businesses can feed their data into Q, at which point it can answer complex questions, create content, and help employees solve problems.
Amazon generated $574 billion in revenue in 2023. That was more than Apple, Nvidia, and Tesla combined during their equivalent reporting periods. Yet, on a price-to-sales basis, Amazon stock is substantially cheaper than all three of them.
AMZN Revenue (Annual) data by YCharts
Amazon is a huge organization, so why have I focused mostly on AI? While e-commerce created most of the company's value in the early days -- and still accounts for 41% of its total revenue -- AI will likely help Amazon close that valuation gap in the future thanks to the substantial growth it could deliver.
Buffett might regret not owning more Amazon stock, but Berkshire's position is worth $1.7 billion, which is still a nice chunk of change.
2. Apple: 43% of Berkshire's portfolio
Apple produces some of the world's most popular consumer electronics, from the iPhone to the Mac computer. Berkshire started buying Apple stock in 2016, and it has spent approximately $38 billion building its position since then. That's more money than the conglomerate has invested in any other stock except one.
Thanks to Apple's strong growth, Berkshire's position is now worth a whopping $160.2 billion, representing 43% of its $372 billion portfolio.
The iPhone is Apple's most successful product. It accounts for more than half of the company's total revenue, and it led to multibillion-dollar offshoot products like the Apple Watch and AirPods. However, with more than 2.2 billion iPhones currently active around the world, Apple is struggling to generate growth. The company's total revenue actually shrank during fiscal 2023 (ended Sept. 30), and it grew by a modest 2.1% year over year in the recent fiscal 2024 first quarter (ended Dec. 30).
Apple's services segment remains a bright spot, though. It includes subscription-based platforms like Apple Music, Apple News, and Apple TV, in addition to other services like Apple Pay. The services segment generated 11.3% in revenue growth during Q1, offsetting the flat hardware sales.
Like Amazon, Apple is turning to AI to unlock its next growth phase. The latest iPhone 15 Pro is fitted with the A17 Pro chip, which is capable of efficiently processing AI workloads on-device. To utilize that computing power, Apple is developing its own LLMs and AI applications in-house, but it's reportedly in talks with leading developers like OpenAI and Alphabet, too.
Advanced AI will make existing features like the Siri voice assistant far more competent and streamline tasks like writing messages and emails. Plus, a virtual chatbot might reduce the amount of time users spend trawling the internet for information.
Given the iPhone's enormous installed base, whichever AI platform Apple chooses could instantly become the most widely adopted in the world. I would expect a company like Alphabet to pay billions of dollars to have Apple use its Gemini AI model, the same way it pays Apple to set Google as the default search engine on the iPhone.
Buffett might have to be patient for AI to reignite Apple's growth. However, considering the company paid $3.8 billion in dividends to shareholders and spent $20.1 billion on stock buybacks in the recent quarter alone, he is being paid handsomely while he waits.
