Berkshire Hathaway CEO Warren Buffett might not be the first name you think of when it comes to cutting edge artificial-intelligence (AI) investments. But while the famously successful moneyman is best known as a value-investing guru, his company also has holdings in promising tech companies that are on track to play big roles in the AI revolution.
If you're interested in owning AI stocks that have the Berkshire Hathaway seal of approval, read on to see why two Motley Fool contributors believe investing in Snowflake (SNOW 2.69%) and Apple (AAPL 0.64%) would be smart moves.
Playing the long game with Snowflake
Keith Noonan: Snowflake is a provider of big-data analytics tools that have been built from the ground up to power the evolution of machine-learning and AI applications. The company's data-warehousing platform makes it possible to combine and analyze information from disparate cloud infrastructure services, and the software specialist also provides tools for sharing and monetizing data and a platform for building heavily analytics-focused applications.
While the company has seen some volatile trading since it went public in September 2020, it has the distinction of being the only stock to have been purchased at its initial public offering by Berkshire Hathaway, and shares look like a smart buy on the heels of a sell-off following its most recent earnings report.
Snowflake's results for the first quarter of its 2024 fiscal year, which ended April 30, actually crushed the market's expectations. Product revenue increased 50% year over year to reach $590.1 million, and adjusted free cash flow surged 46% to hit $286.9 million.
On the other hand, the company cut its full-year revenue guidance from approximately $2.7 billion to $2.6 billion, and it lowered its projected margin for adjusted operating income from 6% to 5%.
The guidance cut sent the stock of the data-service company tumbling. Following the recent pullback, the software specialist's share price is now down roughly 63% from its high.
With macroeconomic pressures already hitting and many analysts and economists forecasting that the U.S. will slip into recession this year or next, Snowflake has seen customers become more hesitant about entering into multiyear contracts. But even with these headwinds expected to lead to some lumpier growth, the company still thinks it will reach its target of $10 billion in product revenue for its 2029 fiscal year.
The company's data-warehousing and app-building services could play a key role in the AI revolution, and Snowflake stock still looks like one of the most intriguing growth plays in the Berkshire portfolio. For risk-tolerant investors, I think shares will prove to be a smart buy at today's prices.
AI can make Apple's products even more desirable
Parkev Tatevosian: Apple is one of Buffett's largest holdings. The tech company is also one that stands to benefit from the rise in the effectiveness of AI. Apple's devices are some of the most popular in the world. The iPhone, Mac computers, iPads, and Apple Watches could become even more desirable when fueled by artificial intelligence.
Apple's sales increased from $171 billion in 2012 to $394 billion in 2022. Imagine how many more people would buy Apple's devices if its chat assistant Siri was more helpful.
Regardless, people will need more tech hardware to interact with any AI-infused product, even if Apple is only the hardware and not the software used. Judging by Apple's massive revenue base, it stands to be one of the prime beneficiaries of a surge in demand for tech hardware like smartphones or tablets.
AAPL P/E ratio (forward 1-year) data by YCharts. P/E = price to earnings.
Apple has already proved it can deliver excellent profits on a large scale. Indeed, its operating income soared from $49 billion to $119 billion in 2022. And unlike many other businesses that could benefit from AI, the stock is not pricing in all the hype. At a forward price-to-earnings (P/E) ratio of 27, it is not very expensive. Looking across Buffett's portfolio, Apple is my favorite AI stock to buy now.
AI is a huge opportunity for investors
Artificial-intelligence technologies have made incredible leaps forward over the last year, but the AI revolution is just beginning to unfold. While they have very different kinds of exposure to unfolding AI trends, Snowflake and Apple both stand out as worthwhile investments for those looking to capitalize on what will likely wind up being this century's most important technological shift.
These stocks may see some volatile trading in the near term owing to macroeconomic and business-specific conditions, but each has the potential to deliver market-crushing returns for shareholders.
