How Warren Buffett is Betting on AI Stocks

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55.1% of Warren Buffett’s $370 Billion Stock Portfolio Is Invested in 4 Artificial Intelligence (AI) Stocks

How Warren Buffett is Betting on AI Stocks
How Warren Buffett is Betting on AI Stocks

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, is known for his value investing philosophy and his long-term approach to the stock market. He is not the type of person who would chase the latest trends or hype, especially in the technology sector. However, that does not mean he is ignoring the potential of artificial intelligence (AI), one of the most disruptive and transformative technologies of our time.

AI is the field of computer science that aims to create machines and systems that can perform tasks that normally require human intelligence, such as learning, reasoning, and decision making. AI has applications in almost every industry and sector, from healthcare to entertainment, and is expected to add $15.7 trillion to the global economy by 2030¹.

Buffett, who has been running Berkshire Hathaway since 1965, has amassed a $370 billion stock portfolio that consists of more than 50 public companies. Among them, four stocks stand out as his biggest bets on AI: Apple, Amazon, Alphabet, and Microsoft. Together, these four stocks account for 55.1% of his portfolio, or more than $200 billion². Let’s take a closer look at each of these AI stocks and why Buffett is investing in them.

Apple: The iPhone Maker with an AI Edge

Apple (AAPL) is Buffett’s largest holding by market value, with a stake worth $175 billion as of January 2024². Although Buffett and his investing lieutenants, Todd Combs and Ted Weschler, have built a mammoth position in Apple for reasons that go beyond AI, such as its loyal customer base, its strong brand, and its recurring revenue streams, AI is also a key factor that gives Apple an edge over its competitors.

Apple has been developing AI for years, and it is behind many of the features and functions that make its products and services so popular and user-friendly. For example, AI powers the autocorrect function on its devices, the content curation on its apps like Apple Music and Apple News, and the voice assistant Siri, which can answer questions, set reminders, and control smart home devices³.

Apple also designs its own computer chips to power its products, and its latest iPhone 15 features the A17 Pro CPU processor, which is the only smartphone chip in the world that uses the 3nm process node. This means it can perform more calculations per second while consuming less energy, which enables faster and more accurate AI applications on the device³.

Apple is also investing heavily in AI research and development, and has hired some of the top AI experts in the world, such as John Giannandrea, the former head of AI at Google, and Ian Goodfellow, the inventor of generative adversarial networks (GANs), a type of AI that can create realistic images and videos⁴. Apple is also rumored to be working on a self-driving car project, codenamed Project Titan, which would rely on AI to navigate the roads and avoid collisions⁵.

Amazon: The E-commerce Giant with an AI Vision

Amazon (AMZN) is another major AI stock in Buffett’s portfolio, with a stake worth $13.5 billion as of January 2024². Amazon is the world’s largest online retailer, and it uses AI to optimize its operations and enhance its customer experience. For instance, AI helps Amazon to recommend products to its customers based on their browsing and purchase history, to manage its inventory and logistics, and to automate its warehouses and delivery systems⁶.

Amazon is also the leader in the cloud computing market, with its Amazon Web Services (AWS) division, which offers a range of AI services and tools to its clients, such as Amazon SageMaker, a platform that allows developers to build, train, and deploy AI models, and Amazon Rekognition, a service that can analyze images and videos for face recognition, object detection, and sentiment analysis⁶.

Amazon is also expanding its AI capabilities into new domains, such as healthcare, education, and entertainment. For example, Amazon has launched Amazon Care, a virtual healthcare service that uses AI to diagnose and treat patients, Amazon Alexa, a voice assistant that can play music, order products, and control smart home devices, and Amazon Prime Video, a streaming service that uses AI to personalize content and recommendations⁶.

Alphabet: The Search Engine Leader with an AI Mission

Alphabet (GOOG, GOOGL), the parent company of Google, is the third-largest AI stock in Buffett’s portfolio, with a stake worth $8.2 billion as of January 2024². Alphabet is the dominant player in the online search and advertising market, and it uses AI to deliver relevant and accurate results to its users, as well as to target ads based on their preferences and behavior.

Alphabet is also a pioneer in AI research and innovation, and has created some of the most advanced and influential AI systems in the world, such as Google DeepMind, the AI lab that developed AlphaGo, the first program to beat a human champion at the complex board game Go, and Google Brain, the AI team that created TensorFlow, the most popular open-source framework for building and deploying AI models.

Alphabet is also applying its AI expertise to various fields and industries, such as healthcare, education, and transportation. For example, Alphabet has launched Google Health, an initiative that uses AI to improve diagnosis and treatment of diseases, Google Classroom, an online platform that uses AI to enhance learning and teaching, and Waymo, a subsidiary that develops self-driving cars that use AI to navigate the roads and avoid accidents.

Microsoft: The Software Giant with an AI Strategy

Microsoft (MSFT) is the fourth-largest AI stock in Buffett’s portfolio, with a stake worth $5.8 billion as of January 2024². Microsoft is the world’s leading software company, and it uses AI to improve its products and services, such as Windows, Office, and Xbox. For example, AI powers the spell check and grammar check functions on Microsoft Word, the voice and video chat features on Microsoft Teams, and the game recommendations and achievements on Xbox.

Microsoft is also a major player in the cloud computing market, with its Microsoft Azure division, which competes with Amazon’s AWS and offers a variety of AI services and tools to its customers, such as Azure Machine Learning, a platform that enables developers to build, train, and deploy AI models, and Azure Cognitive Services, a suite of APIs that can perform tasks such as speech recognition, face detection, and text analysis.

Microsoft is also investing in AI research and development, and has established several AI labs and centers, such as Microsoft Research AI, which focuses on advancing the state of the art in AI, and Microsoft AI and Research, which aims to democratize AI and make it accessible to everyone. Microsoft is also collaborating with other companies and organizations to promote ethical and responsible use of AI, such as the Partnership on AI, a coalition that seeks to establish best practices and standards for AI.

Conclusion

AI is one of the most powerful and disruptive technologies of our time, and it is transforming every aspect of our society and economy. Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, is well aware of this trend, and has invested more than half of his $370 billion stock portfolio in four AI stocks: Apple, Amazon, Alphabet, and Microsoft. These four companies are not only the leaders in their respective fields, but also the innovators and pioneers in AI, and they are poised to benefit from the growth and opportunities that AI will bring in the future. Buffett may not be a tech expert, but he is certainly a smart investor, and his bets on AI stocks are likely to pay off handsomely in the long run.

Source:
Warren Buffett Is Betting Big on These 5 AI Stocks. https://investorplace.com/2023/02/warren-buffett-is-betting-big-on-these-5-ai-stocks/

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