Warren Buffett's Billion-Dollar Bet on AI: A Deep Dive into Snowflake and Amazon

29.5% of Warren Buffett's $305.7 Billion Portfolio Is Invested in 2 Artificial Intelligence (AI) Stocks | The Motley Fool

Many of the stocks in Berkshire Hathaway's portfolio are benefiting from artificial intelligence (AI). Warren Buffett has been at the helm of the Berkshire Hathaway (BRK.A -0.00%) (BRK.B 0.04%) investment company since 1965. During his 59 years of leadership, Berkshire Hathaway stock has delivered a compound annual return of 19.8%, which would have been enough to turn an investment of $1,000 back then into more than $42.5 million today. Buffett's investment strategy is simple. He looks for growing companies with robust profitability and strong management teams, and he especially likes those with shareholder-friendly programs like dividend payments and stock-buyback plans. One thing Buffett doesn't focus on is the latest stock market trend, so you won't find him piling money into artificial intelligence (AI) stocks right now. However, two stocks Berkshire already holds are becoming significant players in the AI industry, and they account for about 29.5% of the total value of the conglomerate's $305.7 billion portfolio of publicly traded stocks and securities. Apple (AAPL 0.04%) is the world's largest company with a $3.3 trillion market capitalization, but it was worth a fraction of that when Buffett started buying the stock in 2016. Between then and 2023, Berkshire spent about $38 billion building its stake in Apple, and thanks to a staggering return, that position had a value of more than $170 billion earlier this year. However, Berkshire has sold more than half of its stake in the iPhone maker during the past few months. Its remaining position is still worth $88.3 billion, so it's still the largest holding in the conglomerate's portfolio, and I think the recent sales reflect Buffett's cautious view on the broader market as opposed to Apple itself. After all, the S&P 500 is trading at a price-to-earnings ratio (P/E) of 27.6 right now, which is significantly more expensive than its average of 18.1 going back to the 1950s. Besides, Apple is preparing for one of the most important periods in its history. With more than 2.2 billion active devices globally -- including iPhones, iPads, and Mac computers -- Apple could become the world's biggest distributor of AI to consumers. The company unveiled Apple Intelligence earlier this year, which it developed in partnership with ChatGPT creator OpenAI. It's embedded in the new iOS 18 operating system, and it will only be available on the latest iPhone 16 and the previous iPhone 15 Pro models because they are fitted with next-generation chips designed to process AI workloads. Considering Apple Intelligence is going to transform many of the company's existing software applications, it could drive a big upgrade cycle for the iPhone. Apps like Notes, Mail, and iMessage will feature new writing tools capable of instantly summarizing and generating text content on command. Plus, Apple's existing Siri voice assistant is going to be enhanced by ChatGPT, which will bolster its knowledge base and its capabilities. Although Apple's revenue growth has been sluggish in recent quarters, the company still ticks nearly all of Buffett's boxes. It's highly profitable, it has an incredible management team led by Chief Executive Officer Tim Cook, and it's returning truckloads of money to shareholders through dividends and buybacks -- in fact, Apple recently launched a new $110 billion stock buyback program, which is the largest in corporate American history. There is no guarantee Berkshire has finished selling Apple stock, but the rise of AI will likely drive a renewed phase of growth for the company, so that's a good reason to remain bullish no matter what Buffett does next. Berkshire bought a relatively small stake in Amazon (AMZN 2.34%) in 2019, which is currently worth $1.7 billion and represents just 0.6% of the conglomerate's portfolio. However, Buffett has often expressed regret for not recognizing the opportunity much sooner, because Amazon has expanded beyond its roots as an e-commerce company and now has a dominant presence in streaming, digital advertising, and cloud computing. Amazon Web Services (AWS) is the largest business-to-business cloud platform in the world, offering hundreds of solutions designed to help organizations operate in the digital era. But AWS also wants to be the go-to provider of AI solutions for businesses, which could be its largest financial opportunity ever. AWS developed its own data center chips like Trainium, which can offer cost savings of up to 50% compared to competing hardware from suppliers like Nvidia. Plus, the cloud provider also built a family of large language models (LLMs) called Titan, which developers can use if they don't want to create their own. They are accessible through Amazon Bedrock, along with a portfolio of third-party LLMs from leading AI start-ups like Anthropic. LLMs are at the foundation of every AI chat bot application. Finally, AWS now offers its own AI assistant called Q. Amazon Q Business can be trained on an organization's data so employees can instantly find answers to their queries, and it can also generate content to boost productivity. Amazon Q Developer, on the other hand, can debug and generate code to help accelerate the completion of software projects. According to consulting firm PwC, AI could add a whopping $15.7 trillion to the global economy by 2030, and the combination of chips, LLMs, and software apps will help Amazon stake its claim to that enormous pie. Amazon was consistently losing money when Berkshire bought the stock, and it doesn't offer a dividend nor does it have a stock buyback program, so it doesn't tick many of Buffett's boxes (hence the small position). But it might be the most diverse AI stock investors can buy right now, and Berkshire will likely be pleased with its long-term return from here even if Buffett wishes it owned a bigger stake.

Billionaires Are Buying These 2 Top Artificial Intelligence (AI) Stocks Hand Over Fist | The Motley Fool

These billionaire favorites can grow even higher in the coming months. Investing in fundamentally strong growth companies with sustainable competitive advantages can be a smart long-term strategy for astute investors. With artificial intelligence (AI) emerging as a major investment trend, it is no surprise that billionaires have also been actively pursuing high-quality AI-powered stocks. Broadcom (AVGO 2.79%) and Apple (AAPL 0.04%) seem to fit the bill and have been picked up by multiple billionaire investors and investment funds. Here's why retail investors should also follow their path and consider taking at least a small position in these stocks now. Semiconductor chip designer and enterprise software player Broadcom's shares are up 25% in 2024. While a 10-for-1 stock split in July 2024 played a major role in improving investor sentiment, many billionaire investors identified the growth potential in this stock in the second quarter of 2024. Some prominent ones were Ken Griffin's Citadel Advisors, the late Jim Simons' Renaissance Technologies, Ken Fisher's Fisher Asset Management, Israel Englander's Millennium Management, Jerome Dodson's Parnassus Investments Holdings, and DE Shaw's David Shaw. The increasing adoption of complex AI technologies has emerged as one of Broadcom's most prominent growth catalysts. Broadcom accounts for nearly 80% share of the data center networking chips market. In the third quarter of fiscal 2024 (ended Aug. 4), the company's networking segment revenue soared 43% year over year to $4 billion. The solid performance was driven by robust demand from hyperscalers for the company's AI-optimized networking solutions and custom AI accelerators. In the third quarter, sales of Ethernet switching products such as Tomahawk 5 and Jericho3-AI were up more than fourfold year over year. Sales of custom AI accelerators, which can be more efficient for specific activities instead of general-purpose GPUs, were up 3.5 times year over year in the third quarter. The AI accelerator business is very profitable and scalable and has high barriers to entry. Subsequently, the company has raised its fiscal 2024 AI revenue projection from $11 billion to $12 billion. The acquisition of virtualization software technology player VMware has also strengthened Broadcom's enterprise software portfolio and reduced its reliance on hardware sales. VMware contributed $3.8 billion in sales in the third quarter. The company expects the high-margin VMware business to enable the company to achieve an adjusted EBITDA margin of almost 64% by the end of fiscal 2024. Broadcom's share price tumbled nearly 10% in late-morning trading on Sept. 6, the day after it released third-quarter results. Although the company surpassed analyst revenue and earnings estimates, a weaker-than-expected fourth-quarter forecast seems to have adversely affected investor sentiment. However, this reaction seems overdone for a stock like Broadcom with solid fundamentals and robust growth prospects, and will most likely be short-lived. Considering the many pros and the current dip in share prices, Broadcom seems like a great stock to buy in September 2024. Although Warren Buffett's investment company Berkshire Hathaway reduced its stake in technology titan Apple by nearly 50% in the second quarter of 2024, many other billionaire investors have been piling on this stock. A few of the prominent ones are Fisher's Fisher Asset Management, Englander's Millennium Management, Jeremy Grantham's Grantham Mayo Van Otterloo, Griffin's Citadel Advisors, Andreas Halvorsen's Viking Global Investors, and Sander Gerber's Hudson Bay Capital. Apple posted impressive results for the fiscal third quarter of 2024 (ended June 29), with revenue and earnings surpassing analysts' average estimates. The company's ecosystem of products and services saw robust demand despite ongoing macroeconomic pressures. Historically, the iPhone has been the major growth catalyst for Apple. Although iPhone sales were down 1% year over year to $39.3 billion in the third quarter, a recent Kantar survey showed iPhone models to be the top-selling smartphone in many key markets, such as the U.S., urban China, the U.K., Germany, Australia, and Japan. Apple recently launched the generative AI technology Apple Intelligence, which will be integrated into its entire product line. The company expects Apple Intelligence to drive more customers to upgrade to newer iPhones capable of running these AI services. The company is gearing up to launch the iOS 18 operating system to make the iPhone more personalized, intelligent, and capable. Coupled with the iPhone's installed base reaching a new all-time high at the end of the third quarter, the iPhone upgrade cycle can be a major catalyst for Apple in the coming years. Apple's digital services segment also reported an all-time revenue high of $24.2 billion, up 14% on a year-over-year basis. The services business is critical in securing recurring revenue streams and building a steady customer base. Services are seeing rising customer demand, thanks to the company's huge installed base of devices. Apple ended the third quarter with more than 1 billion paid subscriptions across the services segment, more than double four years ago. With the highly profitable services business becoming a bigger part of Apple's business, the company's margins are well positioned to widen in future quarters. Apple is trading at trailing-12-month price-to-sales ratio (P/S) of 8.64 times, significantly higher than its five-year average (P/S) of 6.92 times. Despite the elevated valuation, the stock seems attractively priced when compared with the majority of the other AI-powered technology titans. It may make sense for investors to piggyback on several of the billionaires' investment analyses and consider picking up at least a small stake in this stock now.