Warren Buffett's "Magnificent Seven" Artificial Intelligence Bets: 48.5% of Berkshire Hathaway's $365 Billion Portfolio Is in These 2 AI Stocks | The Motley Fool (2024)

Table of Contents
1. Apple 2. Amazon References

Berkshire Hathaway CEO Warren Buffett used to have a reputation for avoiding technology sector investments because of the complexities involved. On the other hand, it's probably fair to say the Oracle of Omaha changed his tune. Today, over half of Berkshire's stock portfolio is made up of technology-focused businesses. Even more striking, 48.5% of its $365 billion portfolio is actually held in just two "Magnificent Seven" stocks.

Named for their incredible sizes, resources, and technology advantages, the Magnificent Seven is a group that includes Microsoft, Apple (AAPL -0.90%), Alphabet, Amazon (AMZN 0.87%), Nvidia, Meta Platforms, and Tesla. Each of these technology giants is a major player in the artificial intelligence (AI) revolution. But notably, only two of them have attracted investment from Berkshire Hathaway.

Warren Buffett's "Magnificent Seven" Artificial Intelligence Bets: 48.5% of Berkshire Hathaway's $365 Billion Portfolio Is in These 2 AI Stocks | The Motley Fool (1)

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1. Apple

With a market capitalization of roughly $2.96 trillion, Apple stands as the second-most-valuable publicly traded company, trailing just slightly behind Microsoft. While the iPhone maker recently lost its title as the world's largest business, it remains the largest holding in the Berkshire Hathaway stock portfolio by far.

Berkshire's last public filing showed that it owned more than 915 million shares of Apple stock. At today's prices, that position is worth over $175 billion and accounts for approximately 48% of the total stock portfolio Buffett's company owns.

Apple has been somewhat secretive about its AI initiatives, but it has some big advantages in the space. For starters, the tech giant has a massive base of users who love its mobile devices, computers, wearables, software, and services. The company's loyal user base love its ecosystem, and its customers also generates tons of valuable data that can be fed to AI systems.

Apple leads the market when it comes to smartphone unit sales in the U.S. and the world at large, a particularly impressive feat given that it typically sells hardware at higher prices than its competitors. Thanks to its incredible pricing power and the popularity of its products, the company captures roughly 85% of worldwide operating profits on smartphone sales. Apple continues to dominate the mobile market, and it's also been an early mover in the voice-based-assistant space with its Siri software.

If AI-powered personal assistants come to be a revolutionary new product category in the way some analysts and tech luminaries are predicting, Apple's user base and early mover advantages could help it be a big winner in the space. Strength in the unfolding virtual-assistant space could give way to big opportunities in online search, e-commerce, and productivity software.

In addition to virtual-assistant technologies and other AI features that will continue to evolve on its mobile and computer hardware, Apple is reportedly working on a self-driving smart car. The tech leader's incredible brand strength could make it a formidable player in the auto market. Delivering an AI-powered computing platform on wheels could have disruptive impacts across multiple industries.

As the AI revolution continues to unfold, Apple's existing strengths and penchant for delivering hugely influential products could help the stock continue to be one of Buffett's biggest winners.

2. Amazon

Berkshire Hathaway owns 10 million shares of Amazon stock, a position that's valued at roughly $1.5 billion. While that holding works out to just 0.4% of Berkshire's total stock portfolio, it's the only other Magnificent Seven stock the investment conglomerate owns -- and it has a range of exciting AI opportunities.

While Amazon is best known as a market-leading e-commerce company, the large majority of its profits actually come from its cloud-infrastructure services. Amazon Web Services (AWS) continues to lead the cloud computing market, and it will see rising demand as more applications are developed, launched, and scaled on its infrastructure.

Generative AI tools and features have already been rolled out on AWS and seem to be a hit with customers, and the business stands to see long-term tailwinds stemming from the development of new artificial intelligence services on its infrastructure.

But the cloud unit isn't the only Amazon business poised to benefit from AI. The tech giant has built a fast-growing digital advertising business on the foundation of its massively popular e-commerce business. The company has huge troves of data on what users of its online retail platform are interested in, and AI should continue paving the way for increasingly efficient digital ad targeting.

Beyond boosting its ad business, AI also has the potential to revolutionize key facets of the company's online retail business. AI is likely to power huge increases in robotics capabilities and help Amazon unlock the untapped profit potential of its massive e-commerce business.

While the company's online retail operations have historically generated a relatively low margin because of high costs, increased warehouse automation stands to be a major positive catalyst. The rise of AI-powered autonomous vehicles and delivery robots is also likely to increase profitability for the e-commerce business.

Between its cloud business, digital ads unit, and online retail segment, Amazon is poised to win big with AI on multiple fronts. While the tech giant occupies a relatively small position in the Berkshire portfolio, it wouldn't be surprising to see Buffett's company increase its holdings in the stock at some point.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

As an enthusiast and expert in finance and technology, I can share my in-depth knowledge on the concepts and companies mentioned in the article. My understanding is rooted in both academic research and practical experience in the financial and tech sectors.

Firstly, the article discusses Berkshire Hathaway CEO Warren Buffett's shift in investment strategy towards the technology sector. Traditionally known for avoiding technology investments due to their complexities, Buffett now has over half of Berkshire's stock portfolio invested in technology-focused businesses. This is a significant departure from his historical approach and indicates a recognition of the transformative power of technology in the current market landscape.

The article then introduces the "Magnificent Seven," a term used to describe seven major technology companies that make up a substantial portion of Berkshire's portfolio. These companies are Microsoft, Apple, Alphabet, Amazon, Nvidia, Meta Platforms (formerly Facebook), and Tesla. The focus will be on two of these companies, Apple and Amazon, which together constitute nearly half of Berkshire's $365 billion portfolio.

  1. Apple (AAPL):

    • Market Capitalization and Position in Berkshire's Portfolio: Apple is the second-most-valuable publicly traded company with a market capitalization of approximately $2.96 trillion. It holds a prominent position in Berkshire's portfolio, comprising around 48% of the total stock holdings.
    • AI Initiatives: Although Apple has been somewhat secretive about its AI initiatives, it benefits from a massive user base across its range of products, including mobile devices, computers, wearables, software, and services. This user base generates valuable data that can be utilized for AI systems.
    • Strengths in the Mobile Market: Apple dominates the mobile market, leading in smartphone unit sales globally. Its ecosystem and brand loyalty contribute to capturing around 85% of worldwide operating profits on smartphone sales.
    • Potential in AI-Powered Personal Assistants: Apple's early mover advantage in the voice-based-assistant space, particularly with Siri, positions it well for potential opportunities in online search, e-commerce, and productivity software. The article also mentions Apple's exploration into self-driving smart cars, leveraging its brand strength in the auto market.
  2. Amazon (AMZN):

    • Berkshire's Holding: Berkshire Hathaway owns 10 million shares of Amazon stock, valued at approximately $1.5 billion. While this represents a relatively small percentage of Berkshire's total stock portfolio, Amazon is the only other Magnificent Seven stock in its holdings.
    • AI Opportunities: Amazon's profits predominantly come from its cloud-infrastructure services, known as Amazon Web Services (AWS), which leads the cloud computing market. The article highlights the potential for AI services on AWS, including generative AI tools and features.
    • Digital Advertising Business: Amazon has a rapidly growing digital advertising business fueled by data from its e-commerce platform. AI is expected to enhance digital ad targeting efficiency, contributing to the company's overall growth.
    • AI in Online Retail: AI has the potential to revolutionize Amazon's online retail business, leading to increased robotics capabilities and improved profitability through warehouse automation. The rise of AI-powered autonomous vehicles and delivery robots is also anticipated to boost profitability in the e-commerce segment.

In summary, the article provides insights into Berkshire Hathaway's evolving investment strategy, emphasizing its significant holdings in technology giants Apple and Amazon. The discussion highlights the role of AI in shaping the future prospects of these companies across various sectors, from personal assistants to online retail and cloud computing.

Warren Buffett's "Magnificent Seven" Artificial Intelligence Bets: 48.5% of Berkshire Hathaway's $365 Billion Portfolio Is in These 2 AI Stocks | The Motley Fool (2024)

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