Warren Buffett and artificial intelligence (AI) aren't often mentioned in the same sentence. Buffett famously avoided investing in tech stocks throughout most of his career, and he preferred sticking with predictable cash cows across the insurance, railroad, and utilities sectors instead of chasing secular growth trends.
Buffett added a few tech stocks to Berkshire Hathaway's (BRK.A +1.28%) (BRK.B +1.27%) portfolio over the past decade, but most of its holdings were still in non-tech sectors. Berkshire also liquidated some of its big tech holdings -- including IBM, Oracle, HP, and Snowflake -- in recent years. It also never bought a single share of the market's hottest AI stock, Nvidia.
Image source: Getty Images.
During Berkshire Hathaway's latest annual meeting, Buffett called AI a "genie" in a bottle that could have a profound impact on the world, but he also said he didn't fully understand AI as a business and wouldn't aggressively invest in it. However, Berkshire can still benefit from the expansion of the AI market through some of its existing investments.
Let's look at three of those AI-adjacent stocks: Apple (AAPL 0.87%), Amazon (AMZN +0.81%), and Nu Holdings (NU 0.66%).
1. Apple
Berkshire Hathaway started to accumulate shares of Apple back in 2016. It recently sold about half of those shares to raise more cash, but its remaining $90.7 billion stake still accounts for 28.8% of its investment portfolio.
NASDAQ: AAPL
Key Data Points
Apple's revenue fell 3% in fiscal 2023, which ended last September, as its iPhone, Mac, and iPad sales all declined. Its earnings per share (EPS) also stayed nearly flat. That slowdown came about with the end of the 5G upgrade cycle and a lack of major Mac and iPad upgrades. But in fiscal 2024, analysts expect its revenue and EPS to grow 9% and 17%, respectively, as its iPhone, Mac, and iPad sales bounce back. Its services segment should also continue to grow at a faster pace than its hardware business.
Looking ahead, Apple expects the introduction of its own generative AI services to lock more users into its ecosystem. These new AI-powered tools can help its users write, edit, and summarize messages, search for photos and videos, and create images from text prompts. It's also integrating OpenAI's ChatGPT into its own applications. These features won't significantly boost its sales anytime soon, but they could widen its moat and keep it in the AI race.
2. Amazon
Berkshire started investing in Amazon in 2019, and its $1.8 billion stake now accounts for 0.6% of its portfolio. Amazon generates most of its revenue from its e-commerce marketplaces, but most of its profit comes from Amazon Web Services (AWS), the world's largest cloud infrastructure platform. That flywheel enables Amazon to subsidize the expansion of its lower-margin retail business with AWS's higher-margin revenue.
NASDAQ: AMZN
Key Data Points
In 2023, Amazon's revenue rose 12% and it returned to profitability, after suffering a net loss from its investment in Rivian in 2022. In 2024, analysts expect its revenue and earnings to grow 11% and 63%, respectively, as its retail and cloud businesses continue to expand in a challenging macro environment.
Amazon expects the growth of the AI market to drive more companies to upgrade their cloud infrastructure. Those tailwinds caused AWS's year-over-year revenue growth to accelerate over the past three quarters. Amazon has also been developing its own large language models (LLMs), developing its own custom AI chips, and expanding Bedrock, its own platform for creating chatbots and other AI tools. That growing toolkit should ensure that Amazon profits from the expansion of the AI market.
3. Nu Holdings
Last but not least, Berkshire bought shares of Nu Holdings, one of the largest online banks in Latin America, during its IPO in 2021. That $1.5 billion stake accounts for only 0.5% of Berkshire's portfolio, but it still has plenty of room to grow.
Nu operates in Brazil, Mexico, and Colombia, and it nearly doubled its customer count from 53.9 million at the end of 2021 to 105 million in the second quarter of 2024. In constant currency terms, its revenue soared 168% in 2022 and 63% in 2023, and its monthly average revenue per active customer grew as its average costs of serving each of those customers declined.
NYSE: NU
Key Data Points
Analysts expect Nu's revenue and adjusted earnings to grow another 40% and 68%, respectively, this year. That makes it one of the world's fastest-growing emerging-market banks.
Nu's online-only approach enables it to scale up its business at a much faster rate than its brick-and-mortar competitors, and it gives it a firm foundation to launch new AI services. It already leverages AI to analyze customer data, operate financial assistance bots and planners, and strengthen its security features. It also recently acquired the Silicon Valley-based data intelligence company Hyperplane to accelerate its AI-driven transformation. In other words, Nu could be a well-diversified way to profit from the long-term expansion of Latin America's booming digital banking, fintech, and AI markets.
