Despite the recent optimism and hype surrounding stocks associated with artificial intelligence (AI) and machine learning (ML), AI-focused investment strategies probably don't attract much interest from famed investor Warren Buffett -- at least, not directly. Buffett, who has spoken briefly about both the potential and the drawbacks of these technologies, would likely have less interest in being a direct AI investor. Emerging technologies tend to foster money-losing tech stocks, and history has usually proven him right when he was skeptical of such assets.
However, many of the stocks Buffett already owns have made him and the Berkshire Hathaway team into AI investors by default, as many of his smaller investments -- stocks like Amazon, Activision Blizzard, and Snowflake -- make extensive use of the technology. Moreover, three of Berkshire's largest holdings make significant use of AI, and only one would fit the formal definition of a "tech stock."
1. Apple
Buffett's Berkshire Hathaway did not buy Apple (AAPL +3.10%) for its AI-driven functionality, and AI is not a key reason that Apple now accounts for 44% of the value in the conglomerate's stock portfolio. Nonetheless, AI and ML play roles in enhancing virtually every current product and service offered by Apple. FaceID, voice recognition, and numerous apps are just some of the AI-driven features in its iPhone.
Additionally, the company invested heavily in AI and ML research. It funds Apple Scholars, university students who conduct AI research. Also, its AIML Residency Program works with experts across several disciplines. These industry leaders build new AI and ML-driven products and services. While the results of its programs are difficult to predict, they will likely enhance Apple's influence and leadership in the AI industry.
NASDAQ: AAPL
Key Data Points
With the market's focus on AI increasing, Apple's stock is moving in the right direction. It has risen by more than 30% since the beginning of 2023.
The increase in the stock price raised its price-to-earnings (P/E) ratio to 28, making it an increasingly expensive company to buy. But as AI's influence over Apple's products and services grows, market-beating returns are probably still within reach for new investors.
2. Bank of America
Its name may condition investors to see Bank of America (BAC +1.18%) as a bank, but given its heavy investments in technology, it has arguably evolved into more of a fintech stock. Those tech investments came amid its emergence from the 2008-09 financial crisis, and among the largest banks, it has become a fintech leader. Global Finance named it the "Most Innovative Digital Bank" in 2022.
On the AI side, BofA describes Erica, its AI-driven assistant, as the engine that brings "personalized banking" to its clients. Erica delivers personalized insights and helps monitor accounts, identifying issues such as duplicate charges or changes in spending patterns.
NYSE: BAC
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Understandably, the liquidity issues that caused the collapses of SVB Financial's Silicon Valley Bank, Silvergate Capital's Silvergate Bank, and others have weighed on the banking sector. Despite BofA's stability, its stock price is down modestly since the beginning of the year. That price drop took its P/E ratio to 9, its lowest level since the beginning of the pandemic.
Even though BofA makes up 9% of Berkshire's portfolio, the recent sell-off could be good news for Buffett and other investors. Since the industry's recent troubles do not affect Bank of America directly, now might be an opportune time to buy shares.
3. Chevron
Chevron's (CVX 4.06%) growing AI capabilities are probably not prominent among the reasons why Buffett's team has continued to add to its large position in the energy giant. Nonetheless, Chevron accounts for 8% of the value in Berkshire's equity portfolio, and the technology will play at least an indirect role in boosting the value of the oil stock.
NYSE: CVX
Key Data Points
Today's energy industry relies heavily on technology for various business activities. One area where AI in particular benefits Chevron is data management. To that end, it partnered with Microsoft and UiPath to automate data extraction into back-end systems. Because this process is now being handled automatically, Chevron's business analysts can spend more time on tasks that add more value.
Additionally, Chevron applies AI to extract information from drilling reports. The technology can tell researchers how different types of rocks impact a hydrocarbon reservoir. These studies reduce the need to drill exploratory wells, reducing the environmental impact of Chevron's activities.
Chevron's stock price is down for 2023, and due to that decline, its P/E ratio of around 9 is in the neighborhood of its multiyear low. Still, the recent announcement by several members of OPEC+ (a group of nations allied with OPEC to cut production in order to boost oil prices) that they will cut crude oil output next month has brought investors back to oil stocks, indicating the stock might soon be heading higher.
