For nearly 60 years, Berkshire Hathaway (BRK.A 0.04%)(BRK.B 0.30%) CEO Warren Buffett has been putting on a clinic for Wall Street and investors. Despite being just as fallible as any other investor, the Oracle of Omaha, as he's come to be known, has overseen close to a 5,500,000% aggregate return in his Class A shares (BRK.A) since ascending to the CEO chair.
Buffett's ability to locate phenomenal bargains hiding in plain sight has earned him quite the following. Investors eagerly await the release of Berkshire's quarterly Form 13Fs to find out which stocks he and his top investment aides, Todd Combs and Ted Weschler, have been buying and selling.
While we often view Warren Buffett as someone who favors value-oriented, mature businesses, he and his team have a sizable percentage of Berkshire Hathaway's investment portfolio tied up in companies fueled by the artificial intelligence (AI) revolution.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
It's difficult not to be enamored with the long-term potential of having AI-driven software and systems learning and evolving without human intervention. The virtually limitless utility of this technology led the analysts at PwC to predict it'll add $15.7 trillion to the global economy by the turn of the decade.
At one point, 46% of Berkshire's investment portfolio (about $189 billion) was spread across four highly touted AI stocks. But based on the latest 13F filing with the Securities and Exchange Commission, Buffett and his investment team have slashed their stake in AI stocks by roughly 50%.
The Oracle of Omaha and his team had bet big on four AI stocks
Let me preface this discussion by pointing out that Warren Buffett might have minimal understanding or interest in artificial intelligence as a technology, but what he definitely does have is a firm grasp on consumer behaviors, and how AI might influence productivity gains and consumption-side shifts in the future.
The anchor of Berkshire Hathaway's AI investments has always been tech stock Apple (AAPL 0.22%). This is the largest holding Buffett and his team oversee by a significant amount.
During Apple's annual Worldwide Developer Conference in June, the company lifted the hood on what it called "Apple Intelligence," i.e., its variety of AI-powered initiatives designed to fuel growth. These new innovations include making voice assistant Siri more intuitive, as well as introducing a chatbot, which will be powered by ChatGPT, to its operating system.
The other three AI stocks Buffett and his investing lieutenants had wagered on (albeit to a smaller degree than Apple) were e-commerce leader Amazon (AMZN 1.15%), China-based electric vehicle (EV) manufacturer BYD (BYDD.F 2.08%), and cloud data-warehousing company Snowflake (SNOW 1.21%).
NASDAQ: AMZN
Key Data Points
Though Amazon is best-known for its dominant online marketplace, it's also the leading cloud infrastructure service platform. According to Canalys, Amazon Web Services (AWS) held a 33% global share (as of June 30) of cloud infrastructure service spending. Amazon is aggressively investing in generative AI solutions for its AWS customers that can help with everything from virtual chat agents to tailored marketing.
As for BYD, it's utilizing artificial intelligence as a means to improve driver safety. In January, the company unveiled its Xuanji Architecture, which is its intelligent driving platform that offers an assortment of advanced driver assistance technologies. BYD is also working with Chinese regulators to test Level 3 autonomous vehicle capabilities on China's roadways. This wouldn't be possible without the use of AI.
Lastly, Berkshire's brightest minds had been investors in Snowflake since its initial public offering in 2020. Snowflake's infrastructure is built atop the most popular cloud infrastructure service platforms to allow its customers to seamlessly share and access data. Similar to Amazon, Snowflake plans to deploy generative AI solutions within its data cloud, which will allow its customers to build and train large language models.
Image source: Getty Images.
Buffett and his investing lieutenants have slashed their holdings in AI stocks
However, Berkshire's 13F for the June-ended quarter showed that Buffett, Combs, and Weschler substantially lightened their company's wager on artificial intelligence.
Although Berkshire's stake in Amazon remains unchanged at 10 million shares, and selling activity in BYD has been minimal for years (Buffett's company holds around 54.2 million shares of BYD), the same can't be said for Apple or Snowflake.
During the second quarter, more than 389 million shares of Apple, representing roughly 49% of Berkshire's stake, as of March 31, were sent to the chopping block. Including shares sold during the fourth quarter of 2023 and first quarter of 2024, Berkshire's investment trio have overseen the disposition of more than 500 million shares of Apple in a nine-month stretch.
NASDAQ: AAPL
Key Data Points
When Berkshire Hathaway held its annual shareholder meeting in early May, Buffett hinted that his company's selling activity in Apple might be tax-related. Berkshire's chief believes the peak corporate tax rate is likely to head higher from its current historically low rate of 21%. Therefore, locking in unrealized gains and paying a lower tax rate now will, in hindsight, be viewed favorably by Berkshire Hathaway's investors.
But there might be more to this selling than meets the eye. While Apple's AI plans certainly lit a fire under its stock in June, the company's operating performance has left a lot to be desired over the last year and change. Sales of iPhones are down 1% through the first nine months of fiscal 2024, relative to the comparable period last year. With the exception of its steadily growing subscription services segment, Apple's physical-device sales have been a drag.
Apple is no longer the amazing value or growth story that it was when Buffett initially invested in the company in early 2016.
While Buffett and his team shed almost 50% of their Apple stake in the June-ended quarter, they completely dumped all 6,125,376 shares of Snowflake.
NYSE: SNOW
Key Data Points
Snowflake never quite fit the mold of a typical Buffett stock. Though it possesses well-defined competitive advantages, which is something Buffett, Combs, and Weschler look for as investors, its astronomical valuation premium left a lot to be desired.
Over the past couple of years, Snowflake's sales growth rate has continually shrunk and it no longer commands anywhere close to the valuation premium it once held. Even though it's well positioned to play a key role in the ongoing development of the enterprise cloud ecosystem, it's not a particularly intriguing value, even after a 70% decline from its all-time high.
With history suggesting an artificial intelligence bubble-burst is looming, Buffett may not be done selling his AI stocks.
