Master investor Warren Buffett may not strike you as an expert in artificial intelligence (AI). However, his portfolio includes several early leaders in the AI race.
So, what's the best way to invest in the ongoing AI surge under the guiding hand of the Oracle of Omaha? We asked three of The Motley Fool's top tech experts, and they came back with very different answers.
Read on to see why our AI panelists suggest e-commerce veteran Amazon.com (AMZN 1.16%), comsumer electronics giant Apple (AAPL -0.65%), or Buffett's own company, Berkshire Hathaway (BRK.A 1.32%) (BRK.B 1.16%).
Buffett's favorite stock to buy the best AI bet of them all?
Nicholas Rossolillo (Berkshire Hathaway): Sure, Berkshire Hathaway is invested in a couple of tech stocks such as Apple and Amazon that could log exceptional growth from AI. However, Berkshire Hathaway itself -- a stock Buffett and company have been repurchasing for years, including nearly $6 billion worth the first half of 2023 -- could be the biggest AI beneficiary of them all.
How so? After all, Berkshire's subsidiary businesses are dominated by "old and stuffy" industries such as manufacturing (Precision Castparts, for one), insurance (GEICO), transportation (BNSF Railroad), and utilities (PacifiCorp). No one in that list is going to be an AI innovator.
But that's just the point. The innovators will unleash new ways for organizations to boost productivity and automate redundancy with AI, and the "old and stuffy" will adopt it once it's tried and true. A recent report from researcher McKinsey asserts AI could unlock as much as $4.4 trillion in global annual productivity gains. Suffice it to say lots of companies in manufacturing, insurance, utliities, and such will be eager to get their hands on that tech if it's as promising as some expect it will be.
As more AI is adopted in software systems, this could provide a profit boost to Berkshire Hathaway -- which I'm sure the Berkshire team would be more than happy to turn around and reinvest by repurchasing more stock, or adding some other businesses into the portfolio. For the record, Berkshire's subsidiary businesses pulled in $18.1 billion in operating profit during the first half of 2023, a 9% increase from 2022. That adds up to a big, steady stream of fresh cash that can be invested, and it's the metric that could get the biggest AI boost over time.
Berkshire Hathaway stock has recently been hitting new all-time highs. It won't continue going straight up from here, but this remains a great core portfolio holding for investors of all types for the long term.
Buffett's largest holding has been on the AI trend for five years running
Billy Duberstein (Apple): Dynamic technology shifts like AI are actually a detriment in Buffett's long-term view of investing, which has kept Berkshire out of many technology stocks. So it might be curious that Apple is Berkshire Hathaway's largest stock position by far, accounting for a stunning 46% of Berkshire's equity portfolio.
But part of why Buffett likes Apple so much is that it's more of a beloved consumer brand, which doesn't have to necessarily be first on every tech trend in order to succeed. For instance, Apple didn't have the first MP3 player on the market, or even the first cellular handset. But its brand, its design chops, and its ability to incorporate technology in a way that's intuitive for consumers has enabled Apple to lead both of those markets.
Right now, the first big use cases for ChatGPT and other AI models seem more akin to search or enterprise-related productivity tools.
But as one of only a handful of large companies that can afford the enormous expense involved in building AI tools, Apple hasn't fallen behind. In fact, it formed a dedicated conversational AI group five years ago and has been infusing all of its products with more and more intelligence ever since.
For instance, we all hate it when the autocorrect tool writes in a word we didn't intend. But in the most recent update to its iOS software back in June, Apple unveiled an updated autocorrect that will learn from conversations to incorporate context and slang, improving both autocorrect and auto-fill on iMessage.
Other updates included Airpods getting more intelligent, with the ability to sense when you're having a conversation and automatically lower volume, as well as other adaptive and personalized volume settings. And iPhoto can now identify your favorite people in your photo album, distinguishing your dog from all other dogs, for instance. Overall, you may have noticed your iPhone becoming more intuitive to your needs over the past few months. That's no accident.
But Apple is also building large language models (LLMs) in the vein of ChatGPT. The Information recently reported Apple has developed an internal LLM that's even more powerful than the current ChatGPT 3.5, called Ajax, but that it's currently only for internal use. However, it's not a stretch to think Apple will soon be using LLMs for customer support or other corporate functions to make its business more productive in the near future. And a visual intelligence model is also reportedly in the works, given Apple's extensive businesses having to do with audiovisual arts.
With as many financial resources as any company and a corporate ethos to always use technology within a superior user experience with a high ethical bar, Apple stands to benefit from AI advancements as much as any other major tech company.
Amazon's triple-layered AI approach
Anders Bylund (Amazon): The AI opportunity is structured in three layers.
First, there's the specialized hardware that runs everything -- systems built around AI-specific microchips. Then, there's the back-end software that analyzes various types of data to draw useful conclusions. Finally, you have the consumer-facing (or business-boosting) platform that creates a user-friendly experience based on the middle layer's machine learning and advanced chatbots.
Each one of these three layers will support massive business operations for years to come. And here's the fun part: Amazon is an important provider of products and services across all three layers.
- The consumer exposure is obvious. The hot-off-the-press updates to Amazon's Fire TV and Echo product lines highlighted a next-generation upgrade of the underlying Alexa software's AI capabilities. The company promised its customers access to "the world's best personal AI" -- a third-layer title often associated with ChatGPT.
- In the middle layer, you'll find the Amazon Web Services (AWS) cloud-computing platform, which gives app developers easy access to many AI engines. The Amazon Bedrock service in AWS delivers "large language models as a service," including a homespun LLM called Titan. The GPT system that powers ChatGPT is not included, but Amazon's well-rounded list of specialized LLM models is arguably comparable to the leading LLM.
- Going down to the first layer of bare-metal hardware, AWS offers cloud-based virtual machines with the usual range of AI accelerator hardware -- but that's not the whole story. Some AWS instances feature Amazon's own AWS Trainium, Inferentia, and Graviton processors. You might not think of Amazon as a chip-making leader, but its chips come with competitive performance at an affordable price point.
Amazon's leaders realize that most of the consumer-facing AI experience will come from other companies, with Alexa playing a minor role. But that's OK, because the company aims for a leading role across the first two AI layers.
Here's how CEO Andy Jassy explained his AI vision on the third-quarter earnings call:
What we're doing is democratizing access to generative AI, lowering the cost of training and running models, enabling access to large language model of choice instead of there only being one option. We're making it simpler for companies of all sizes and technical acumen to customize their own large language model and build generative AI applications in a secure and enterprise-grade fashion. These are all part of making generative AI accessible to everybody, and very much what AWS has been doing for technology infrastructure over the last 17 years.
So if you're looking for a long-term winner in the AI space, Amazon is your best bet among Warren Buffett's 54 current investments. In fact, I'm not sure you'll find a stronger AI stock anywhere. And the stock isn't even expensive, trading at a modest 2.7 times trailing sales. Amazon is a no-brainer AI investment in my eyes.