The Oracle of Omaha has been (mostly) wise to ignore his own advice.
It’s not exactly a secret that Warren Buffett’s never been a big fan of tech stocks. He’s simply heeding his own advice to “never invest in a business you cannot understand.” He doesn’t know enough about most technologies to determine how marketable they are, or how well-defended they are from competition.
And he’s proven as much in his otherwise-impressive past. For instance, back in 2011, Buffett steered Berkshire Hathaway (BRK.A -1.36%) (BRK.B -1.42%) into a decent-sized stake in IBM (IBM -3.54%), which performed well enough shortly thereafter. We now know, however, that IBM just wasn’t ready for the de-emphasis of personal computing workstations and the rise of cloud computing and mobility.
By 2018, Berkshire had dumped its entire stake in the then-slumping stock. Lesson learned.
To say the Oracle of Omaha has completely given up on technology stocks wouldn’t be accurate, though. While it’s likely he was encouraged by one or more of his lieutenants to do so, Buffett recently added more than a little bit of artificial intelligence (AI) technology exposure to Berkshire Hathaway’s holdings. Here’s a closer look at its two biggest AI positions.
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Warren Buffett isn’t completely anti-technology
There are several companies in Berkshire’s portfolio tinkering with AI, for the record. Coca-Cola is one of them. Domino’s Pizza is another. Both outfits are mostly just using AI to improve efficiency and curb costs, though, parsing mountains of digital minutiae that would otherwise be too overwhelming to manually handle. AI isn’t exactly transforming their businesses or products, and as such, neither name is being counted as Buffett-owned AI stock.
Apple (AAPL -3.40%), however, is a different story.
It wasn’t always an AI stock, either. Indeed, Apple was strangely late to the AI party. While the early versions of its voice-activated digital assistant Siri were powered by a kind of AI, they don’t hold a candle to more powerful tools like Alphabet Google’s Gemini or OpenAI’s ChatGPT. The company didn’t really get serious about AI until last year, when it announced in June that Apple Intelligence would launch later that year, turning iPhones into powerful productivity devices.
Things didn’t pan out nearly as well as hoped. Introduced in October to be optimized for the iPhone 16 that became available just a month prior, within a couple of months, even die-hard Apple fans were expressing disappointment. Not only were there only a handful of features, the few that were available at the time didn’t offer iPhone owners enough reliably usable utility.
By March of this year, the company replaced Siri’s chief, and just a few weeks later, had regrouped its entire AI segment. For perspective, Apple now says the next new-and-improved version of Siri won’t be ready for release until early next year, presumably in conjunction with several related updates of other Apple Intelligence features.
The important detail of this initial misstep? Apple could have given up, turning its focus back on its non-AI hardware and functionality that’s wowed consumers for well over a decade. It didn’t, though. It doubled down, perhaps recognizing that consumer-friendly AI is a must-do, even if getting there’s a complicated, painful journey.
And perhaps that’s as it should be. After all, research firm Market.us expects the worldwide intelligence virtual assistant market to grow at an average annual pace of 31% through 2034.
Berkshire currently holds 280 million shares of Apple, collectively worth a little over $70 billion, by the way. That’s only a fraction of the nearly 916 million shares it owned as of late 2023, but it’s still the conglomerate’s single-biggest stock position, at just under 24% of its total holdings.
Buffett’s other AI stock is Amazon (AMZN -4.97%), although it’s a considerably smaller position. With only 10 million shares worth just a little over $2 billion, this trade makes up less than 1% of Berkshire Hathaway’s total stock portfolio.
Still, it’s a trade Buffett’s stuck with since early 2019, when he’s had plenty of opportunity to lock in a nice profit.
At first blush, Amazon admittedly doesn’t look like much of an AI name. E-commerce remains its biggest business as measured by revenue, accounting for more than 80% of its total sales through the first half of this year. The other 20% comes from its cloud computing arm, Amazon Web Services.
But this division is much more profitable than its e-commerce operation is. It’s also growing much faster, sporting a year-over-year top-line improvement of 17% during the second quarter of this year, to continue a growth pace it’s seen for years now.
And it is increasingly an artificial intelligence business thanks to newer and better tech. For instance, Amazon has designed, built, and deployed its own AI processors that lower the net cost and improve the performance for cloud customers using their access to do artificial intelligence work. Specifically, its Graviton processors using Arm Holding chip architecture are 20% cheaper to use, because they’re 60% more power-efficient than comparable alternatives. Netflix, Snap, and several other major companies now rely on Graviton silicon, along with a handful of other customers using Amazon Web Services as the backbone for their AI assistants.
A bullish vote of confidence
So does Berkshire’s ownership of these AI-related names make both (or either) a buy for you? Not necessarily.
If you were considering taking on a new position in either technology stock, the fact that Warren Buffett and his protégés remain bullish enough to stick with them this long speaks volumes; someone clearly sees enough defensible, sustainable upside, now and for the foreseeable future. Go ahead and take Buffett’s lead on either, or both.
Just don’t own either one if you’re specifically looking for an AI “pure play” stock. Neither of these names quite qualifies for that categorization.
That’s not a bad thing, though. See, while dedicated AI companies like Palantir Technologies and CoreWeave may be growing faster, a bunch of them are still in the red, and likely to remain unprofitable for a long time — perhaps never actually achieving profitability. Profitable companies like Apple and Amazon that manage other profit centers and also have the ability to support the long-term growth of their artificial intelligence businesses — by melding them with proven platforms — are in a much better position to thrive in the long run.