Warren Buffett's Bet on Amazon: A Strategic AI Play in Cloud Computing

1 Warren Buffett Stock That Could Go Parabolic in 2025 and Beyond | The Motley Fool

Warren Buffett is known for buying stocks when they're undervalued -- and then scoring a win after the rest of the market realizes the strengths of these particular players. The billionaire investor doesn't always get in on a stock at the earliest possible point, but he does buy early enough to potentially benefit from years of growth. This is the case with his investment in one of today's most well-known companies. Back in 2018, Buffett expressed regret that he didn't scoop up the shares sooner. His team added them to the portfolio the following year. This stock has been a winner over time, but it still has plenty of room to run, thanks to its leadership in two high-growth industries and its focus on artificial intelligence (AI). Let's check out this Buffett stock that could go parabolic this year and beyond. So, first, a bit of background on Buffett. Why are investors so eager to follow his moves? The billionaire has proven his ability to select winning stocks over time, and that's helped him, as chairman, lead Berkshire Hathaway to a compounded annual gain of nearly 20% over 58 years. That's compared to a 10% increase for the S&P 500. Unsurprisingly, investors refer to the Nebraska native as the "Oracle of Omaha." Buffett focuses on long-term investing -- buying a stock and holding it for a number of years to benefit from the company's growth over time. He's held certain stocks for decades, a classic example being Coca-Cola, which he bought in the late 1980s and still holds today. So, if a company doesn't offer solid prospects well into the future, it won't be on Buffett's buy list. Now, let's consider the Buffett stock that could roar higher this year and beyond. This player is Amazon (AMZN -2.83%), a leader in e-commerce and cloud computing. As mentioned, Buffett initially passed on the stock, then said during a CNBC interview in 2018 that he "blew it" when he made that decision as he underestimated the business's potential. Buffett and his team went on to buy Amazon in the first quarter of 2019. Since that time, the stock has climbed about 150%, showing that even if you don't buy a company at the very start of its growth story, there may still be plenty to gain in the next chapters. This continues to be the situation with Amazon, a company that's built a long track record of earnings growth powered by its e-commerce and cloud businesses and continues to make moves that should spur new waves of growth. Today, the driver of this growth may be Amazon's investment in AI, which is benefiting the company across both of these key businesses. In e-commerce, AI tools are helping Amazon better serve customers and lower costs; for example, AI helps the company determine the fastest and shortest delivery routes for packages. Another example: Amazon offers its shoppers Rufus, an AI-powered shopping assistant. If shoppers find Rufus helpful, they're more likely to keep shopping on the e-commerce platform. Through Amazon Web Services (AWS), the company's cloud business, Amazon provides customers with a broad range of AI products and services, from chips to a fully managed service to accompany them along their development path. This array of offerings helped AWS reach a mind-boggling $115 billion revenue run rate last year, and AWS should continue to see growth in this area as we're still in the early days of the AI revolution. Analysts forecast that today's $200 billion AI market will reach more than $1 trillion by the end of the decade. Today, Amazon shares trade for about 35 times forward earnings estimates, a reasonable level considering the company's growth story so far and prospects down the road. At this level, this Buffett stock still has plenty of room to run -- and that means it could go parabolic this year and beyond as the AI boom continues.

Warren Buffett's Favorite Artificial Intelligence (AI) Stock Is a Screaming Buy | The Motley Fool

Warren Buffett is one of the best investors of all time. But he's not traditionally known for investing in technology businesses. That's changed in recent years, however, and today some of his biggest positions are technology companies. In fact, he's currently betting billions of dollars on a particular artificial intelligence stock that looks like a screaming buy for investors bullish on artificial intelligence (AI). Most people don't think of Amazon (AMZN -1.65%) as an AI company. But one of its biggest business segments sits at the center of the AI revolution. In 2006, Amazon launched a new division: Amazon Web Services, or AWS for short. At first, this division was structured around helping to make its internal e-commerce operation more efficient at scaling. But over time, Amazon realized that other businesses needed the same solutions, especially when it came to scaling cloud computing. Today, AWS controls more than 31% of the cloud computing infrastructure market. From distributed compute and storage to big data analytics, AWS helps make the internet what it is today. But more recently, cloud computing providers like Amazon cater to a massively growing market: AI and machine learning. Artificial intelligence is largely delivered via models. These are mathematically trained systems fed with data that allow AI platforms to do all the things were rely on it for today, things like recognizing patterns, making predictions, and automating tasks without custom programming. Many AI companies run their own models, though some use open-source models. These models typically need huge amounts of data for training. To function properly upon launch, they need to access and process even more data. All of this requires huge amount of computing power, much of which is provided by cloud service providers like AWS. As the largest cloud service provider in the world, AWS benefits greatly from the AI industry's rising demand for more cloud resources. This growth in demand won't stop anytime soon. According to McKinsey & Co., data center capacity could rise at an annual rate of between 19% and 22% from 2023 to 2030. This will require a huge buildout of additional cloud infrastructure. "To avoid a deficit," McKinsey & Co. concludes, "at least twice the data center capacity built since 2000 would have to be built in less than a quarter of the time." As one of the largest, most experienced, and best-funded providers, Amazon has a front-row seat to both maintain and grow its dominant market share. AWS is still a minority of Amazon's total overall business. But due to AI demand, this segment is commanding more attention. In 2024, AWS generated nearly $108 billion in revenue, comprising around 17% of Amazon's total sales. That's up from $91 billion in revenue in 2023, which represented just 15.8% of Amazon's revenue that year. Just as important is AWS' contribution to Amazon's profitability. This segment is significantly more profitable than others. While it only generated 17% of revenue in 2024, AWS was responsible for 58% of its total operating income that year. So not only is AWS a driving force behind Amazon's top-line growth, but it's also the majority of its operating profits today. AWS is a tantalizing reason for any investor like Buffett to be interested. His holding company owns around $2.1 billion shares, and owned a stake since 2019. To be sure, Amazon's e-commerce business will still likely be the leading contributor of revenue for several years to come. But the explosion of AI demand could soon turn Amazon into an even bigger AI business. If that happens, there should be plenty of upside versus the company's current position as primarily an e-commerce provider.

If I Could Only Buy 1 Warren Buffett Artificial Intelligence (AI) Stock, This Would Be It (Hint: It's Not Apple) | The Motley Fool

Apple is Berkshire Hathaway's largest position, but I see a different artificial intelligence (AI) stock as the better opportunity. For decades, Warren Buffett helped build Berkshire Hathaway into a financial behemoth primarily through investments across consumer goods and insurance. It's quite rare that the Oracle of Omaha dabbles with stocks in the technology sector. Ironically enough, though, the largest position in Berkshire's portfolio is Apple. However, Berkshire has actually been trimming its stake in Apple considerably over the last year. In my eyes, Apple is not the artificial intelligence (AI) stock to buy in Berkshire's portfolio. Rather, I'll outline why Amazon (AMZN -0.28%) is my top Buffett AI play and make a case for why investors should buy this stock hand over fist right now. Amazon reports its operating results across the following segments: online stores, physical stores, third-party seller services, advertising, subscriptions, and Amazon Web Services (AWS). The largest contributors to Amazon's revenue are, by far, online stores and third-party seller services (which is, effectively, an extension of the e-commerce marketplace). With that said, I see the AWS cloud infrastructure business as the real crown jewel. AWS accounts for over $100 billion of revenue annually for Amazon -- and sales are accelerating. What's even better is that AWS accounts for the majority of Amazon's operating income, providing the company with a fast-growing cash cow poised to dominate the ongoing AI revolution. Below, I'll explore what's driving AWS right now and detail why Amazon is sitting in a lucrative position in the AI realm. A couple of years ago, you may recall that Microsoft (MSFT -0.09%) committed to a $10 billion investment in OpenAI -- the maker of ChatGPT. For quite a while, this partnership set the tone for the AI narrative -- and in my opinion, I still kind of does. While others in the big tech arena have been working swiftly on their own AI roadmaps, I feel OpenAI continues to garner an outsized amount of attention relative to its peers. But in a way, this is actually a good thing for Amazon. Following Microsoft's investment in OpenAI, Amazon poured $4 billion into a generative AI start-up called Anthropic. As part of the deal, Anthropic is training its models on AWS infrastructure and using Amazon's custom Trainium and Inferentia chipware. In the table below, I've summarized the revenue growth and operating margin in AWS since Amazon initially invested in Anthropic in September 2023. Data source: Investor Relations. It's clear that since Anthropic became embedded into the AWS ecosystem, Amazon has witnessed significant acceleration across sales and profits in its cloud business. Given the positive tailwinds Anthropic is fueling for Amazon, it's not surprising that the company invested an additional $4 billion into the start-up late last year. During the company's fourth-quarter earnings call earlier this month, investors learned that Amazon is budgeting for more than $100 billion of AI infrastructure spend this year. Given the importance AWS is playing in Amazon's AI ambitions, it's not surprising that management indicated the majority of this infrastructure spend will be going toward cloud applications. While the operating results above are impressive, I think Amazon's momentum is just beginning. The table below illustrates Amazon's trailing 12-month operating margin trends over the last five years. Following a tough period in 2022 -- which was underscored by high inflation and rising interest rates -- Amazon has managed to turn the page and generate more attractive unit economics at scale. What's even better is that Amazon's operating profits aren't just improving -- they are accelerating, as indicated by the steep slope in the line above. One additional point I'd like to make is that while the operating margin for AWS hovers in the mid-30 percentages, the overall operating margin for Amazon's entire business sits closer to 11%. To me, this underscores just how important and influential AWS is for Amazon's overall picture -- hence, the majority of its AI investments are dedicated to this particular unit. As of this writing (Feb. 18), Amazon stock trades at a price to free cash flow (P/FCF) multiple of 73 -- quite the discount to the company's 10-year average P/FCF of 80, and even more so to its five-year average P/FCF ratio of 104. Considering AWS is entering a new phase of growth featuring the AI megatrend and its importance in Amazon's overall ecosystem, coupled with the stock's historically cheap valuation, I see Amazon as a no-brainer opportunity to buy hand over fist right now.

Warren Buffet, known for not traditionally investing in tech, now has major investments in AI; he's betting billions on this specific AI stock, should other investors Buy?

Warren Buffett has shifted his investment strategy towards technology companies. He has invested billions of dollars in Amazon, which is becoming more dominant in the AI and cloud computing space. Amazon Web Services (AWS) dominates AI and machine learning markets, growing and making Amazon profitable. Investors can invest in Amazon for its increasing AI capabilities.Billionaire investor Warren Buffett, who was not much into investing in tech companies, recently changed his investment strategy to include some of his biggest positions in technology companies. Buffett has bet billions on Amazon, a stock that's piqued the interest of many an investor, particularly those who are optimistic about artificial intelligence (AI), as per a report. Here is a closer look at the company's performance. While Amazon might not be the first company that springs to mind as an AI giant, its vast cloud arm, Amazon Web Services (AWS), has become a leader in the AI revolution, reported The Motley Fool. AWS began in 2006 as a means of supporting Amazon's e-commerce operations in scaling. However, it expanded into a worldwide cloud computing leader, with more than 31% of the market under its control today. AWS is now at the forefront of the exploding AI and machine learning markets, as per a report. Within artificial intelligence, AWS is pivotal. The firm supplies the computer processing that drives AI and machine learning models -- computers charged with identifying patterns, predicting behaviour, and controlling processes. Whereas a few AI businesses develop models of their own, most need to outsource to cloud operators like AWS so they can sort through the colossal volume of information that goes into training and usage, as per The Motley Fool. As AI demand keeps on rising, so does the demand for computational resources. According to McKinsey & Co., data centre capacity will increase at a 19% to 22% annual growth rate between 2023 and 2030, a staggering growth that will necessitate a lot of investment in infrastructure, reported The Motley Fool. Though AWS is still a minority of Amazon's total overall business, the scope is now expanding. In 2024, AWS earned close to $108 billion, representing 17% of Amazon's total sales, compared to $91 billion in 2023, reported The Motley Fool. AWS is 58% of Amazon's operating income, making it one of the company's most significant contributors to profitability. According to The Motley Fool, though Amazon's online retailing business is still its biggest moneymaker, the increasing demand for AI is increasingly focusing attention on AWS and may soon make it an even larger force in the AI arena. Buffett's Berkshire Hathaway has approximately invested $2.1 billion in Amazon stock and has been in this position since 2019, as per the report. For investors following the AI wave, Amazon's increasing dominance in the cloud business makes it a compelling choice, according to The Motley Fool. Although Amazon's e-commerce segment continues to be a major portion of its business, its increasing AI and cloud capabilities offer a strong growth narrative. With AWS powering both top-line growth and profitability, the company is well-placed to ride the AI innovation wave, as per the report. According to The Motley Fool, Amazon might be a good addition for investors interested in taking advantage of the huge demand for AI-based solutions in the next few years. Why is Warren Buffett investing in Amazon now? Warren Buffett, who's not particularly big on tech bets, has now shifted his tack and made sizeable bets in Amazon because the company has so dramatically improved its growth by leveraging cloud computing with Amazon Web Services (AWS) and positioning itself at the centre of the AI revolution. How is AWS fueling Amazon's success? AWS contributed $108 billion in revenue in 2024, which was 17% of Amazon's overall sales.