Since Warren Buffett became the CEO of Berkshire Hathaway (BRK.A 0.39%)(BRK.B 0.27%) in 1965, its stock has delivered a compound annual return of 19.8%. That would have been enough to turn a $1,000 investment into $42.5 million, whereas the same investment in the S&P 500 would have grown to just $325,053 over the same period.
Buffett's long-term investing strategy is simple. He buys into companies with steady growth, robust profitability, strong management teams, and shareholder-friendly initiatives like stock buyback programs and dividend schemes, which help to compound his returns over time. You won't ever see Buffett chasing the latest stock market trend -- not even one as powerful as artificial intelligence (AI).
With that said, three of the existing stocks in Berkshire's $296 billion portfolio of publicly traded securities are integrating AI into their legacy businesses in very unique ways.
Image source: The Motley Fool.
1. Amazon: 0.8% of Berkshire Hathaway's portfolio
Amazon (AMZN 2.61%) is the world's largest e-commerce company. It's using AI in its fulfillment centers to drive efficiency, and it even created an AI shopping assistant called Rufus, which can help customers find the right products. However, most investors are focused on Amazon's cloud computing platform called Amazon Web Services (AWS), because it's trying to dominate the three core layers of AI:
- Infrastructure: AWS operates data centers fitted with Nvidia's industry-leading chips, but it also designed its own chips called Trainium (for AI training) and Inferentia (for AI inference). Trainium can save developers up to 50% on AI training costs compared to competing chips, and demand is so high that Amazon is producing more of them than it expected.
- Large language models (LLMs): Developers can access leading third-party models from companies like Anthropic and Meta Platforms on the AWS Bedrock platform to accelerate their AI software projects. Bedrock is also home to a family of LLMs called Titan, which Amazon built in-house.
- Software: Amazon's new Q virtual assistant is embedded in AWS to help businesses extract valuable insights from their internal data. It can also generate computer code on demand to help developers build software.
During the third quarter of 2024, AWS revenue came in at $27.4 billion, which was a 19% increase from the year-ago period. AI revenue within AWS, however, grew by a triple-digit percentage, and Amazon says this business is growing 3 times faster than the cloud business did at the same stage of its life cycle.
Berkshire invested in Amazon in 2019, although Buffett has often expressed regret for not buying the stock sooner. However, Berkshire's stake is worth $2.2 billion as of this writing, so the conglomerate can still make a lot of money in the long run if Amazon's AI bets pay off.
NASDAQ: AMZN
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2. Coca-Cola: 8.4% of Berkshire Hathaway's portfolio
Coca-Cola (KO +0.12%) isn't a company people normally associate with cutting-edge technologies like AI, but it didn't become a global soda giant without a healthy splash of innovation. Last year, it even appointed a "head of generative AI" to oversee all the ways it uses this new technology.
AI is already a big part of Coca-Cola's marketing strategy. It recently launched an interactive campaign called "Create Real Magic," which allows customers to input prompts into an AI image generator via its website to produce Christmas-themed digital snow globes. These initiatives help the Coca-Cola brand engage with customers in new and exciting ways.
The company also used AI to create a promotional version of its flagship soda called Coca-Cola Y3000. The goal was to predict what the drink might taste like in the year 3000 by using AI to analyze mountains of customer data.
Going forward, Coca-Cola plans to invest heavily in AI. It recently struck a five-year deal with the Microsoft Azure cloud platform, where it will spend $1.1 billion tapping into AI services to improve its supply chains, productivity, and marketing.
Berkshire spent $1.3 billion to acquire 400 million shares in Coca-Cola between 1988 and 1994. It has never sold a single share, and today, that position is worth a whopping $25 billion. AI definitely wasn't part of Buffett's Coca-Cola investment thesis back then, but the technology could add significant value to his stake from here.
3. Apple: 25.8% of Berkshire Hathaway's portfolio
Berkshire spent $38 billion acquiring a stake in Apple (AAPL 0.96%) between 2016 and 2023, and at the start of this year, that position was worth over $170 billion. Talk about an incredible return! However, Berkshire has sold more than half of its Apple shares throughout 2024. Buffett might be concerned about the valuation of the broader stock market, so he's cashing in some of his biggest winners.
Apple has experimented with AI for years. It initially powered minor features like autocorrect, the recommendation engine in Apple Music, and even the Siri voice assistant. However, the company recently launched Apple Intelligence (in partnership with OpenAI), which is transformational by comparison. It introduces new writing tools capable of summarizing emails and texts, and it can even proofread or rewrite outgoing content.
NASDAQ: AAPL
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Apple Intelligence can also generate images and learn what users care about the most in order to prioritize their notifications. Plus, Siri now taps into the knowledge of OpenAI's ChatGPT software, so it's smarter than ever.
There are more than 2.2 billion Apple devices worldwide, so the company could eventually become the biggest distributor of AI to consumers. The continued rollout of new AI features might encourage customers to upgrade to the latest devices, which could also accelerate Apple's revenue and earnings growth in the near term.
Apple stock remains Berkshire's largest holding, despite the spirited selling this year. Therefore, Buffett and his team could still benefit significantly if Apple's efforts in AI pay off.
