Warren Buffett, as chairman, has helped Berkshire Hathaway's portfolio grow to more than $258 billion -- and it's even beaten the S&P 500 index along the way. Berkshire Hathway has delivered a compounded annual gain of more than 19% over 59 years, while the benchmark has registered a 10% gain over that time period. This isn't thanks to investing in the latest technologies or hot trends but rather to choosing a variety of quality companies in often slower-moving industries, such as consumer goods or financial services.
But this doesn't mean you can't apply Buffett's techniques and investing principles to an area he wouldn't necessarily dive into today, such as artificial intelligence (AI). In fact, it's a fantastic idea to consider AI stocks that fit Buffett's playbook, as we know that elements this top investor looks for often lead to investing success.
Now the ironic thing about the following two stocks is they actually are ones Buffett owns. But it's key to point out he didn't buy them as AI investments -- he picked up shares of each well before the AI boom -- and I wouldn't expect Buffett to scoop up any stock as an AI bet just yet. But if the billionaire were to change his mind and start shopping for AI players, he probably would add to his holdings of the following two companies.
Image source: The Motley Fool.
1. Amazon
Several years ago, before Buffett picked up Amazon (AMZN -0.39%) shares, the investing giant said he regretted passing on the stock earlier on. He said he hadn't imagined it was possible to build such an e-commerce empire. Shortly after making those comments, in 2019, one of Buffett's managers added Amazon shares to the portfolio, and the rest is history.
Buffett may have bought Amazon for its leading e-commerce and cloud-computing businesses, and today these strong businesses continue to make Amazon a great buy. But on top of this, Amazon is also winning in AI: The company has applied AI tools to its operations to gain in efficiency, and Amazon Web Services (AWS) sells AI products and services to AI customers.
Why is Amazon a Buffett-style buy? This is thanks to the company's solid moat, or competitive advantage, and it takes the form of AWS' leadership. It's easy and logical for current customers to turn to AWS for their AI needs. Considering that AWS is the world's No. 1 cloud-services provider, this means many potential AI customers are ready and waiting. Amazon's e-commerce business also has a strong moat. Its vast fulfillment network and Prime subscription program make it possible for Amazon to offer low prices and rapid delivery -- benefits customers like.
Buffett appreciates moats because they ensure a company can hold onto its market position for the long run and deliver earnings growth. The top investor, if shopping for AI stocks, also would like the fact that Amazon today is cheaper than it was just a few months ago. It trades for 34x forward earnings estimates, down from 50x late last year.
2. Apple
Apple (AAPL -1.32%) also offers investors a moat -- in the shape of its solid brand. Fans of the iPhone and other Apple products generally don't shift to rival products even if they're cheaper. On top of this, Buffett, who favors well-managed companies, has on many occasions shown that Apple falls into this category. At the latest Berkshire Hathaway annual meeting, Buffett even thanked Apple CEO Tim Cook for his work as it resulted in gains for Apple shares over the years -- and gains for Berkshire Hathaway.
Today, I also think Apple represents a Buffett-style buy because the company didn't immediately go all in on AI but instead took its time to build Apple Intelligence, a suite of AI features, and applied them to its products this past fall. This measured way of advancing offers investors a certain element of security. At the same time, Apple's brand moat and innovation suggest growth will continue.
Investors have worried in recent times that Apple might suffer from import tariffs as it relies heavily on manufacturing abroad. Though this represents uncertainty at the moment, I don't think the U.S. government will apply measures that could truly harm the country's top tech companies. And Apple does have the financial strength, with more than $28 billion in cash to handle some headwinds and still prevail.
All of this means that today, Apple, trading at 27x forward earnings estimates down from 35x at the end of last year, is a great Buffett-style AI stock to buy on the dip.
