When you hear the names Berkshire Hathaway (BRK.A +1.26%) (BRK.B +1.11%) and Warren Buffett, I'm willing to bet that artificial intelligence (AI) investing is not the first thing that comes to your mind. However, if you look at some of the stocks they own, it's clear that some of their portfolio is exposed to the AI trend.
This is mostly based on the companies in his portfolio choosing to pursue AI rather than Buffett and Berkshire choosing to pursue AI companies. Still, investors would be wise to pay attention when one of the most successful investment firms of all time takes a position in a company.
So, what is this company involved in AI that Berkshire is invested in? While Apple (AAPL +1.20%) is a fair guess (and a correct one), I'm more focused on Amazon (AMZN 0.54%).
Berkshire's Amazon investment has been a success
Berkshire Hathaway owns some Amazon stock, although it isn't a huge part of its overall portfolio. Berkshire owns 10 million Amazon shares, valued at around $2 billion. While that may sound like a lot, it only makes up 0.7% of Berkshire's total portfolio. That's not an inconsequential amount, but it's also not going to steer Berkshire's investment returns either.
Furthermore, it's also unknown whether Buffett himself made the purchase. Although Buffett is the CEO, Buffett's lieutenants, Ted Weschler and Todd Combs, are given a certain amount of investment freedom. They are known to invest in less value-based investments, which grants them some freedom to purchase less Buffett-esque stocks like Amazon from time to time.
NASDAQ: AMZN
Key Data Points
However, if Berkshire had known how the Amazon investment would work out, they would have undoubtedly bought more.
Berkshire first invested in Amazon in Q1 2019. During that quarter, Amazon's average price was about $83 per share. The stock trading for around $200 per share now would indicate a 141% return on investment.
However, the bulk of that return has come in recent months, as Amazon's AI affiliation is starting to take hold.
AWS is a key part of the AI investment thesis
While Amazon deploys AI technology throughout its business, its real association with AI comes from its cloud computing wing, Amazon Web Services (AWS). AWS is the largest cloud computing provider and has seen a growth resurgence in recent quarters thanks to massive AI demand.
Cloud computing is a critical part of AI infrastructure as it allows companies to rent computing power and storage space rather than buying an expensive server for themselves. This allows them to scale rapidly or ramp up or down computing power based on the work that needs to be done. Furthermore, Amazon has invested and partnered with generative AI leader Anthropic to give its AWS clients the tools they need to integrate generative AI into their workflows and systems.
All of this has revived AWS's growth, and the division increased revenue by 19% year over year to $27.5 billion in Q3. Profitability also improved, with its operating income up 50% to $10.4 billion, indicating an impressive 38% operating margin.
AWS is a huge part of Amazon's profitability. It accounted for 60% of Amazon's operating profits despite making up 17% of total sales. That's a significant driver for Amazon's business, and if it keeps growing at a rapid rate, Amazon's stock will follow.
Thanks to AI, Amazon is crushing it on the cloud computing side, but this has infused some high expectations into the stock.
The stock isn't cheap and trades for 34 times 2025 earnings.
AMZN PE Ratio (Forward 1y) data by YCharts
That's a high price to pay for Amazon's stock, but with the AI tailwinds and improving profitability across all of Amazon's divisions, Amazon remains in a buying zone. I think Amazon can still beat the market from here on out, but it's going to need to keep up its AWS growth for some time to do it. The odds of that are fairly high, making Amazon a solid investment right now.
