When you think of artificial intelligence (AI) stocks, you may not automatically think of Warren Buffett. The Oracle of Omaha, as he's often called, has made a fortune through investing in the stock market, but his choices generally aren't tech stocks or companies focused on a newish or up-and-coming field.
Instead, Buffett has favored companies that may take more time to grow than today's typical AI stock, but have proven their strength over time. He favors stocks in areas such as financial services, oil, and consumer goods, to name a few.
But, if you take a close look at this investment giant's portfolio, you'll see he's actually not absent from AI. In fact, he's pretty heavily invested in it through one of his main investments, along with a smaller holding. These two stocks make up 26% of Berkshire Hathaway's $271 billion portfolio right now.
Of course, Buffett initially bought these stocks a few years ago, so he didn't buy them specifically for their involvement in AI -- but he has held on to them as this technology gained momentum and these companies increased their investment in it. Let's take a closer look at Buffett's favorite AI stocks and consider whether they're right for you too.
Image source: The Motley Fool.
1. Apple
Apple (AAPL +0.74%) itself makes up more than 25% of Berkshire Hathaway's portfolio and is one of the investor's biggest bets. Along with four other companies (American Express, Bank of America, Coca-Cola, and Chevron), it makes up 70% of the portfolio's fair value.
Buffett has sold shares of Apple in recent quarters, but it's important to put the move into context. He's held the stock since 2016, and it's climbed more than 700% during its time in the billionaire's portfolio. Buffett's comments during the Berkshire Hathaway shareholder meeting in May suggested his sales of the top-performing stock were done to lock in profits at today's capital gains tax rate -- he believes this rate is likely to increase. This and Apple's ongoing significant size in the portfolio indicate that Apple remains a Berkshire Hathaway favorite.
NASDAQ: AAPL
Key Data Points
We all know Apple for its best-selling devices, from the iPhone to the Mac, and the company's newest growth driver is selling services to its massive user base. Services revenue has reached records quarter after quarter.
Now, we can add AI to the picture as another potential growth driver for Apple. The company is launching Apple Intelligence across its platform, an enormous selection of generative AI features to assist users in business and during leisure time. This could make Apple's already outstanding products even better, further securing the company's competitive moat (Buffett loves solid moats).
At the same time, Apple isn't completely dependent on AI for its successes, making the stock a great bet for cautious investors seeking some exposure to this hot technology without much risk. And trading for 30x forward earnings estimates today, the company looks like a bargain, considering its solid track record.
2. Amazon
Amazon (AMZN -0.78%) makes up less than 1% of Berkshire Hathaway's portfolio, but it's been a steady presence since 2019. One of Buffett's money managers initially made the move to buy, but Buffett himself has been a big fan of the company for years and even expressed regret over not buying the stock sooner.
"It's far surpassed anything I would have dreamt could have been done," he said in a CNBC interview back in 2018. "I had no idea that it had the potential. I blew it."
Amazon represents a major player in the world of AI today because the company is using the technology to improve its own business, and through its cloud computing unit, it sells AI products and services to others. We'll talk e-commerce first.
AI is helping Amazon streamline operations across its fulfillment network, and as a result improve its cost to serve. The company just opened a fulfillment center featuring its newest robotics innovations -- and it's expected to eventually cut cost to serve by 25%.
NASDAQ: AMZN
Key Data Points
But where Amazon may be making the biggest gains right away is through its Amazon Web Services (AWS) business. The cloud computing giant offers customers everything they need for their AI projects, from chips to a fully managed service that allows customers to tailor top large language models to their specific projects. And AWS is also present in the area of applications, offering Amazon Q, a generative AI assistant for software development.
All this has helped AWS reach an annualized revenue run rate of $110 billion, showing that Amazon is able to monetize its investment in AI.
So, who should follow Buffett into this AI bet today? Amazon's long history of earnings growth should win over cautious investors, while the company's big moves in AI will appeal to more aggressive investors. And that makes Amazon a great buy for just about any investor looking for a potential AI win over the long term.
