The stock of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) has yielded a compound annual return of 19.8% since Warren Buffett took over as CEO in 1965. While the identical investment in the S&P 500 would have only increased to $325,053 over the same time period, that would have been sufficient to turn a $1,000 investment into $42.5 million.
Warren Buffett has a straightforward long-term investing approach. In order to increase his profits over time, he invests in businesses that have excellent management teams, consistent growth, high profitability, and shareholder-friendly policies like dividend plans and stock repurchase programs. No stock market trend, not even one as potent as artificial intelligence (AI), will ever see Warren Buffett following it.
Having said that, three of the current stocks in Berkshire’s $296 billion publicly traded securities portfolio are incorporating AI in quite distinctive ways into their legacy companies.
The Big 3’s
1) Amazon: 0.8% of Berkshire Hathaway’s portfolio
The biggest online retailer in the world is Amazon (NASDAQ: AMZN). In order to increase productivity, it is implementing AI in its fulfilment centres. Rufus, an AI shopping assistant, was developed to assist clients in finding the appropriate products. However, because Amazon is attempting to control the three fundamental layers of artificial intelligence, the majority of investors are concentrating on its cloud computing platform, Amazon Web Services (AWS):
- Infrastructure: In addition to using Nvidia’s market-leading CPUs in its data centres, AWS has developed its own chips, Trainium (for AI training) and Inferentia (for AI inference). Compared to competitor chips, Trainium can save developers up to 50% on AI training costs, and because of the tremendous demand, Amazon is making more of them than it anticipated.
- LLMs(Large Language Models):To speed up their AI software applications, developers can use top third-party models from businesses like Anthropic and Meta Platforms on the AWS Bedrock platform. Additionally, Bedrock is home to the Titan family of LLMs, which Amazon developed internally.
- Software: To assist companies in drawing insightful conclusions from their own data, Amazon has integrated its new Q virtual assistant into AWS. In order to assist developers in creating software, it can also produce computer code on demand.
In the third quarter of 2024, AWS generated $27.4 billion in revenue, a 19% increase over the same period the previous year. Nonetheless, AWS’s AI revenue increased by a triple-digit proportion, and according to Amazon, this business is expanding three times faster than the cloud industry at the same point in its life cycle.
Warren Buffett has frequently lamented not purchasing Amazon stock sooner, but Berkshire made an investment in the company in 2019. The conglomerate can still profit greatly in the long run if Amazon’s AI investments prove successful, though, as Berkshire’s stock is currently valued at $2.2 billion.
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2)Coca-Cola: 8.4% of Berkshire Hathaway’s portfolio
Although people don’t typically equate Coca-Cola (NYSE: KO) with cutting-edge technology like artificial intelligence, the multinational beverage giant didn’t grow without a fair dose of innovation. It even hired a “head of generative AI” last year to supervise all of its applications of this emerging technology. Coca-Cola’s marketing approach already heavily incorporates AI. In a new interactive campaign dubbed “Create Real Magic,” users may create digital snow globes with a Christmas theme by entering prompts into an AI picture generator on the company’s website. Through these efforts, the Coca-Cola brand interacts with consumers in novel and fascinating ways.
The corporation also used AI to produce the Coca-Cola Y3000, a promotional variant of its main beverage. The objective was to use artificial intelligence (AI) to evaluate vast amounts of consumer data in order to forecast what the beverage could taste like in the year 3000. Coca-Cola intends to make significant investments in AI in the future. It just signed a five-year agreement with the Microsoft Azure cloud platform, investing $1.1 billion to use AI capabilities to boost marketing, productivity, and supply chains.
Between 1988 and 1994, Berkshire invested $1.3 billion to purchase 400 million Coca-Cola shares. Even though that position is currently worth an astounding $25 billion, it has never sold a single share. Although Buffett’s investment thesis for Coca-Cola at the time did not include artificial intelligence (AI), the technology has the potential to significantly increase the value of his share in the company.
3)Apple: 25.8% of Berkshire Hathaway’s portfolio
Between 2016 and 2023, Berkshire invested $38 billion to acquire a stake in Apple (NASDAQ: AAPL), which at the beginning of this year was valued at over $170 billion. What a fantastic comeback! Nevertheless, during 2024, Berkshire sold over half of its Apple stock. Buffett is cashing in some of his biggest victories because he may be worried about the value of the stock market as a whole.
For years, Apple has been experimenting with AI. At first, it powered small functions like Siri’s voice assistant, Apple Music’s recommendation engine, and autocorrect. In contrast, the corporation recently introduced Apple Intelligence (in collaboration with OpenAI), which is revolutionary. It presents new writing tools that can summarise texts and emails.
Additionally, Apple Intelligence can create visuals and determine the most important things for users to prioritise their messages. Additionally, OpenAI’s ChatGPT software is now used by Siri, making it smarter than before. With over 2.2 billion Apple devices globally, the business may eventually overtake all other distributors of artificial intelligence to customers.
The ongoing introduction of new AI features may persuade consumers to purchase the newest models, which could potentially hasten the short-term rise of Apple’s revenue and profits. Despite the aggressive selling this year, Berkshire’s largest position is still Apple stock. Therefore, if Apple’s AI initiatives are successful, Warren Buffett and his team could still reap huge benefits.
