Warren Buffett will step down as CEO of Berkshire Hathaway (BRK.A -0.48%)(BRK.B -0.41%) at the end of this year, capping off a stellar run that dates back to 1965. Had you invested just $500 in Berkshire stock when he took the helm and held on, you would be sitting on a position worth around $25.2 million today. That same investment in the S&P 500 would have grown to just $196,656.
Fortunately for investors, Buffett will continue to serve as Berkshire's chairman, and he has trained his successor, Greg Abel, in his methods. So his brand of long-term value investing is likely to endure at the conglomerate for quite some time.
Buffett's specialty is finding companies with steady growth, reliable profits, and experienced management teams, and investing in them for many years. His preference is to stick with businesses that he understands, which is one big reason why, historically, he has typically shied away from technology companies.
The "Magnificent Seven" -- a moniker that investors have bestowed upon a group of trillion-dollar U.S. companies that have a penchant for outperforming the rest of the market -- are all, in one way or another, tech stocks. They are Apple (AAPL -2.51%), Amazon (AMZN -0.15%), Alphabet (GOOG -1.05%)(GOOGL -1.11%), Nvidia, Microsoft, Meta Platforms, and Tesla.
And despite the fact that they are in many ways outside his wheelhouse, Buffett and his team have bought three Magnificent Seven stocks since 2016. One, in particular, they just added in the last few months. Together, those three stocks represent 23.4% of the total value of Berkshire's $309 billion equity portfolio. Here's what they are.
Image source: The Motley Fool.
1. Amazon: 0.8% of Berkshire Hathaway's portfolio
Amazon is one of the most diverse companies in the technology space, with dominant presences in e-commerce, cloud computing, streaming, and digital advertising. Like most of its peers, it is now spending hundreds of billions of dollars in the fight for supremacy in the artificial intelligence (AI) industry.
The tech giant's cloud segment, Amazon Web Services (AWS), is at the center of its AI strategy. AWS operates data centers fitted with thousands of advanced chips from top suppliers like Nvidia, but it also designed its own AI-accelerator chips, Trainium and Inferentia, which are more affordable for developers to rent. Anthropic, which is one of the world's top AI start-ups, is now training its latest Claude models using Trainium2 chips.
NASDAQ: AMZN
Key Data Points
AWS generated a record $33 billion in revenue during the third quarter, an increase of 20% year over year. It was the unit's fastest growth rate since the fourth quarter of 2022. Amazon is on track to spend around $125 billion on AI data center construction this year as it attempts to fulfill a whopping $200 billion order backlog from AWS customers who are waiting for additional cloud computing infrastructure to come online.
Berkshire first invested in Amazon in 2019, but Buffett has expressed regret for failing to identify the opportunity sooner. Fortunately, Berkshire will benefit from Amazon's next leg of growth, which is likely to be fueled by AI.
2. Alphabet: 1.6% of Berkshire Hathaway's portfolio
Alphabet is the parent company of Google, YouTube, and Waymo, and it's the newest Magnificent Seven stock in Berkshire's portfolio. Buffett and his team purchased a nearly $5 billion stake in the tech giant during the third quarter.
Initially, onlookers viewed the rising use of AI as a risk to Alphabet because chatbots like OpenAI's ChatGPT had the potential to sap traffic from Google Search, which consistently accounts for more than half of Alphabet's revenue. But the company infused its search engine with its own family of large language models (LLMs) called Gemini to create new features like AI Overviews and AI Mode, which combine traditional search results with AI-generated content.
NASDAQ: GOOGL
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Alphabet says these features have been a success in terms of usership and monetization, but they are just one part of the company's AI strategy. A growing number of developers are flocking to Google Cloud to access the data center computing capacity and ready-made LLMs (including Gemini) they need to create AI software. This helped drive 34% revenue growth for the platform in the third quarter. It was the second consecutive quarter in which that growth rate accelerated.
Shares of Alphabet are trading at a price-to-earnings (P/E) ratio of 27.2 as I write this, making it the second-cheapest stock in the Magnificent Seven. Since Buffett loves value, it's no surprise the tech giant found its way into Berkshire's portfolio.
3. Apple: 21% of Berkshire Hathaway's portfolio
Apple remains Berkshire Hathaway's largest holding. It actually accounted for around half of the conglomerate's portfolio at the beginning of 2024, before Buffett and his team went on a selling spree. Berkshire spent around $38 billion acquiring its stake in Apple between 2016 and 2023, and since the value of the position peaked at over $170 billion, taking some profits off the table was simply smart portfolio management.
Apple's latest iPhones, iPads, and Mac computers are built for the AI era. The company designs its own advanced chips for each device, which deliver the computing power required to run its new Apple Intelligence software. This includes an expanding suite of AI apps and features that can summarize texts and emails, generate images, and prioritize notifications based on each user's preferences.
NASDAQ: AAPL
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Apple's new iPhone 17 lineup features its most powerful chips so far, and it's driving a much better upgrade cycle than Wall Street expected. But looking at the bigger picture, there are 2.35 billion active Apple devices globally, so the company could eventually become the world's biggest distributor of AI software to consumers.
Therefore, Berkshire can still do very well from here despite having drastically reduced its Apple stake.
