Editor's Note: This article was written before recent news regarding Berkshire's Apple stake reduction. It has been updated to reflect that the stake has been reduced from $176 billion to around $84 billion.
Warren Buffett knows a lot about a lot. He's an expert on the insurance industry thanks in part to Berkshire Hathaway's ownership of GEICO and General Re. The legendary investor has researched the banking industry thoroughly. He is very familiar with the ins and outs of energy companies (otherwise, he wouldn't be investing so heavily in Occidental Petroleum).
But Buffett would be the first to admit that he doesn't know everything. One area he definitely doesn't understand is artificial intelligence (AI). But AI could soon make the legendary investor a boatload of money.
AI isn't in Buffett's wheelhouse
Microsoft co-founder Bill Gates showed OpenAI's ChatGPT to Buffett in 2023. Buffett was astounded by what the AI model could do. However, he told CNBC, "I think it's something I don't understand at all."
During Berkshire Hathaway's annual shareholder meeting earlier this year, Buffett spoke more about his views on AI. He had compared nuclear weapons to a genie out of the bottle in the previous year's shareholder meeting. Buffett said, "AI is somewhat similar. It's part [of the] way out of the bottle and it's enormously important, and it's going to be done by somebody so we may wish we'd never seen that genie or it may do wonderful things."
Buffett mentioned that someone showed him a video that featured a deepfake of himself. He warned that AI "could become the growth industry of all time" for scammers. Buffett added, "As someone who doesn't understand a damn thing about it, it has enormous potential for good and enormous potential for harm and I just don't know how that plays out."
Buffett's potential AI-fueled jackpot
I suspect, though, that Buffett will soon see how AI plays out in one important way. And he could enjoy an AI-fueled jackpot.
Berkshire Hathaway's single largest holding by far is Apple (AAPL +0.16%). In June, Apple announced its long-awaited generative AI strategy. The company plans to launch its "Apple Intelligence" capabilities in October.
NASDAQ: AAPL
Key Data Points
The first version of Apple Intelligence will enhance Apple's Siri AI assistant. It will generate summaries for email, text messages, and voicemail. Future versions will include emoji and image generation, ChatGPT integration, and more.
However, arguably, the most important thing Apple Intelligence will do is boost iPhone sales. The new AI functionality will only work on the iPhone 15 Pro, iPhone 15 Pro Max, and newer models. Bank of America analyst Wamsi Mohan thinks Apple Intelligence will create strong demand for iPhones. Morgan Stanley believes Apple's new AI capabilities will provide a "clear catalyst for a multi-year product upgrade cycle."
iPhones make up roughly 55% of Apple's total sales. The smartphone also drives additional revenue through accessory products and services. If AI fuels a major upgrade cycle for iPhones, Apple's revenue and profits will likely increase significantly.
How much could Buffett make?
Bank of America thinks a strong iPhone upgrade cycle could push Apple's share price nearly 15% higher over the next 12 months. Morgan Stanley is even more optimistic, with its analysts expecting Apple stock to jump more than 20%.
Let's be more conservative, though, and assume Apple's share price will increase by only 10% over the near term due to an AI-powered surge in iPhone sales. How much money would Buffett make in this scenario?
Even with Berkshire slashing its Apple holdings recently, the stake in Apple was still worth around $84 billion. A 10% increase in Apple's share price would translate to a gain of $8.4 billion for Buffett's conglomerate.
If Apple rolls out more impressive AI functionality in the future, it's not out of the question that we could see a "super cycle" of iPhone upgrades that goes on for years. Apple just might be worth much more in the future as a result of its AI initiatives.
Buffett doesn't have to understand AI to make a boatload of money from the technology. For that matter, neither do you or I.
