You might not think of Warren Buffett immediately when the topic of artificial intelligence comes up. The legendary investor has famously shied away from most tech stocks in the past, maintaining that those companies were outside of his circle of competence. Since AI represents one of the most advanced technologies around, it would be understandable if he avoided investing in AI-focused companies.
However, Buffett actually hasn't avoided AI stocks at all. Several of the technology's leaders can be found among Berkshire Hathaway's (BRK.A 0.61%) (BRK.B 0.60%) holdings. Here are Buffett's top five AI stocks -- and why you should consider owning them, too.
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Buffett's top five
If you looked at Berkshire Hathaway's latest 13F filing with the U.S. Securities and Exchange Commission (SEC), you'd probably identify only two stocks with obvious solid AI connections. Apple (AAPL 1.00%) ranks as the conglomerate's biggest stock holding by far. It also owns a relatively small stake in Amazon (AMZN 0.80%). Both of these companies are clearly heavily engaged in AI development. But where are the other AI stocks in Buffett's portfolio?
There are some companies in the Berkshire Hathaway portfolio that are engaged in AI development. For example, Mastercard owns Brighterion, a company that develops AI applications for the financial, healthcare, and retail sectors. Nu Holdings owns Olivia AI, which develops AI solutions for financial companies. Several others in the portfolio -- among them American Express and Chevron -- are using AI in various ways.
However, I don't think any of these deserve spots among Buffett's top five AI stocks. Instead, we need to look at some other stocks that don't show up in Berkshire Hathaway's SEC filings. I'm referring to what could be called Buffett's "secret portfolio" -- stocks owned by Berkshire Hathaway subsidiary New England Asset Management (NEAM).
Like Berkshire Hathaway itself, NEAM owns a big stake in Apple. It also holds significant positions in Microsoft (MSFT 0.43%) and Nvidia (NVDA -1.84%). The investment firm initiated three new positions in the fourth quarter of 2022. AI pioneer Alphabet (GOOG 0.24%) (GOOGL 0.34%) arguably stood out as the best of the bunch.
There are other AI candidates in NEAM's portfolio, including such notable names as IBM and Intel. However, I think that Apple, Amazon, Microsoft, Nvidia, and Alphabet are the best AI stocks owned by Buffett.
What makes these stocks special
Apple is the biggest technology company in the world by market cap. Unsurprisingly, it's also a leader in artificial intelligence. Millions of people use Apple's AI every day with Siri and facial recognition on iPhones. CEO Tim Cook stated in Apple's latest quarterly conference call that AI "will affect every product and every service that we have."
Amazon's AI efforts go beyond its Alexa virtual assistant. Amazon Web Services (AWS) incorporates AI extensively into its cloud-hosting services. The company's online product recommendations use advanced AI. Amazon uses AI throughout its internal operations as well.
Microsoft has been at the center of the conversation about AI in recent weeks because of its integration of OpenAI's ChatGPT with the Bing search engine. Its Azure cloud-hosting services, like AWS, feature lots of AI options for customers. Microsoft's Github Copilot uses AI to help programmers write code and is available as an extension for the company's Visual Studio platform.
Nvidia could be the preeminent pick-and-shovel AI play. The company's graphics process units (GPUs) are popular because of their ability to handle the intensive processing power requirements of AI apps. Nvidia has also developed platforms for speech AI and self-driving car technology.
Last but not least, Alphabet has long been a leader in AI development. Its Google and YouTube search engines use AI extensively. Google Cloud offers advanced AI capabilities to customers who use its cloud services. The company's Waymo unit is one of the top providers of AI-powered self-driving car technology. Google plans to soon launch Bard, its large language model that's expected to be a major rival to ChatGPT.
Why you should own them, too
I think there's one overriding reason why you should consider owning all five of the top AI stocks in Buffett's portfolio. It's the same reason why Buffett himself buys and holds stocks: Their growth prospects make their current valuations attractive.
To be sure, some of these stocks look more attractively valued than others. Alphabet, for example, trades at a much lower forward earnings multiple than Apple, Amazon, Microsoft, or Nvidia do. However, my view is that even the most expensive of these stocks will prove to be a huge winner over the long run.
These aren't just AI stocks, of course. All of these companies have other growth drivers in addition to AI. But AI will no doubt be extremely important to their fortunes over the next decade and beyond. I think that Buffett's top five AI stocks will make him even wealthier in the future. They could make you richer, too.
