At one time, Berkshire Hathaway CEO Warren Buffett avoided technology stocks at all costs, reasoning that he had difficulty grasping complicated technology. The iconic investor was clear about his preferences for investing in "simple businesses," saying, "If there's lots of technology, we won't understand it."
Over the years, however, that stance has changed. Today, more than 41% of Berkshire's equity portfolio is made up of two stocks poised to profit from the artificial intelligence (AI) revolution.
Image source: The Motley Fool.
1. Apple -- $135 billion
Investors who have followed Berkshire Hathaway for any period of time will know that the company's largest AI stock is Apple (AAPL +1.08%). While the initial stake in the iPhone maker was made by one of Buffett's money managers, the so-called "Oracle of Omaha" soon saw the attraction and began accumulating shares on his own. To close out the first quarter, Buffett's stake in Apple amounted to 789 million shares worth roughly $135 billion.
While Apple has long been on the cutting edge of AI technology, the company kept its plans for generative AI close to the vest -- until recently. At Apple's Worldwide Developers Conference (WWDC) this week, the company ripped the lid off its plans, introducing "Apple Intelligence," a comprehensive strategy to integrate generative AI functionality into a broad cross-section of its products and services. This includes features across messages, photos, notes, and even notifications.
The most notable development is that Siri will be getting a long-awaited makeover. Not only will the digital assistant get a generative AI boost, but it will also be able to interact with apps on the iPhone and other devices, making it much more useful along the way.
The company was quick to point out that all this new functionality will come with Apple's characteristic privacy built-in, performing many of the AI processes on-device, helping to protect user information. Access to ChatGPT will be coming later this year, giving users the option to engage the chatbot for specific purposes.
Wall Street is almost universal in its delight at Apple's plans. The general consensus is that these improvements will spark an upgrade "supercycle." As many as 270 million of Apple's 1.5 billion active iPhones are at least four years old, and this could be the catalyst behind the next iPhone buying spree.
NASDAQ: AAPL
Key Data Points
Wedbush analyst Dan Ives predicts that Apple will sell between 225 million and 230 iPhones this year. At an average selling price of more than $900, the company could easily hit a new record for iPhone revenue.
That would be good news for Buffett and thousands of other Apple investors.
2. Amazon -- $1.8 billion
Buffett has admitted that he "always admired Jeff [Bezos]," Amazon's (AMZN +1.93%) former CEO. He also issued a mea culpa, saying he "blew it," passing up two opportunities to invest in the e-commerce and cloud computing leader. He cited the "miracle" of the company's growth as putting him off because "If I think something is going to be a miracle, I tend not to bet on it."
At the behest of one of Buffett's money managers, Berkshire Hathaway finally corrected that oversight and now holds a considerable stake in Amazon. The company holds 10 million shares in a stake currently valued at nearly $1.8 billion.
Amazon has a long history of developing advanced algorithms to advance its business, creating tools to recommend products, map out delivery routes, and maintain accurate inventory levels to meet demand.
Currently, the company offers a suite of AI-powered products and services on its industry-leading cloud infrastructure platform, Amazon Web Services (AWS). This represents one of the company's largest opportunities, as infusing AWS with AI-powered features could be a catalyst for future cloud growth.
NASDAQ: AMZN
Key Data Points
Is it time to buy?
Investors were recently alarmed that Berkshire sold 13% of its Apple shares earlier this year. Some believed that Buffett had soured on Apple, but Buffett pushed back on the idea. He said the current corporate tax rate -- currently at 21% -- was historically low, compared to rates of 35% or 52% in recent memory.
"I would say that at the end of the year, I would think it extremely likely that Apple is the largest common stock holding we have," Buffett insisted. He went even further, saying that "unless something really extraordinary happens," Berkshire will still hold a significant position in Apple "when Greg takes over the place." Buffett was referring to his designated successor, Greg Abel. This suggests Apple will remain a foundational investor for Berkshire for the foreseeable future.
Apple's recent foray into generative AI, the pent-up demand, and the stickiness of its product portfolio suggest that the stock is still a buy.
The recent economic downturn and ongoing battle with inflation have weighed on Amazon, but the company is on the road to recovery. Its e-commerce business has returned to growth, and demand for its digital advertising and cloud services is on the upswing. Despite recent challenges, it remains the world's largest provider of e-commerce and cloud infrastructure services, which is why Amazon is also a buy.
The adoption of generative AI continues to accelerate, though no one knows for sure how high it will go. Estimates suggest that generative AI could have an economic impact of between $2.6 trillion and $4.4 trillion in the coming years, according to global management consulting firm McKinsey & Company.
With a windfall of that magnitude, Buffett's stake in these AI stocks could be about to get much more valuable.
