Warren Buffett invests US$157 billion in these two “Big 7” artificial intelligence (AI) stocks

Warren Buffett doesn’t typically invest in high-growth stocks building cutting-edge technologies. “The Berkshires are no He joked in his recent annual letter to shareholders that he “takes newcomers seriously.”However, he invested a large portion of Berkshire Hathawayof (NYSE: BRK.A) (NYSE: BRK.B) A portfolio of two artificial intelligence (AI) giants, both members of the acclaimed Hao Qi.

The Big Seven are a group of giant companies whose stocks largely drive the performance of the stock market S&P 500 Index Since early 2023. Most of them are technology leaders rather than typical Buffett investments. But if Buffett sees value in these two stocks, they’re likely to deliver handsome returns for investors, whether they lean more toward Buffett’s investment style or growth stocks.

The following are two of the “Seven Artificial Intelligence” stocks in which Buffett invested US$158 billion.

Graphic depicting a computer chip printed with artificial intelligence.

Image source: Getty Images.

1. Apple ($155.3 billion)

apple (NASDAQ:AAPL) It has become Berkshire Hathaway’s largest equity position. Buffett initially began accumulating Apple stock between 2016 and 2018. Since then, as the stock’s share price has soared, Berkshire Hathaway’s position has swelled to a value of about $155 billion today.

Although Buffett has Cut his Apple position In fact, Buffett has expressed regret over selling stocks when there was a tax opportunity in the past, but he seemed to be making the same mistake late last year.

Given the size of Berkshire’s stake in Apple, no one should question Buffett’s confidence that the company and stock will produce strong results going forward. Buffett called Apple “a better business than any company we’ve ever owned” at last year’s annual shareholder meeting in Berkshire.

So, why does Buffett like Apple so much?

While Apple develops various technologies, including artificial intelligence, Buffett sees it as an unparalleled consumer products company. No consumer product is more ubiquitous than the smartphone, and Apple’s share of the smartphone market, especially at the high end, is unparalleled.

In recent years, Apple has capitalized on this position by expanding its ecosystem and building a large services business. In a sense, the iPhone has become a platform business, which has helped Apple generate ever-expanding profit margins. Services as a whole generate nearly twice as much profit per dollar as Apple’s hardware sales.

Buffett is also a fan of Apple’s massive capital return program. He noted that Berkshire’s stake in Apple grows a little bit every year because Apple buys back so much stock. The company generates about $100 billion in free cash flow annually, and in return, virtually all of it is distributed to shareholders through dividends and buybacks. As a result, shareholders, including Berkshire Hathaway, get a bigger stake in Apple’s earnings each year.

Apple stock trades at a forward price-to-earnings ratio of 26 times, a slight premium to the S&P 500 Index. But its large cash position and stock buyback program justify that premium.

2. Amazon ($1.8 billion)

Another member of the Big Seven in Berkshire’s portfolio is Amazon (NASDAQ: AMZN)Amazon is far from a Buffett stock. He even said in an interview a few years ago that the business was beyond his capabilities, so he didn’t think missing out on the stock was a mistake. Still, his company owns about $1.8 billion worth of stock Amazon inventory.

This may be due to one of Buffett’s partner portfolio managers, Ted Weschler or Todd Combs, starting investing in 2019.

There’s a lot to like about Amazon. “It changes your behavior, everybody’s behavior,” Buffett said of the company in 2017. In fact, Amazon Prime has become an important moat for the business, driving shoppers and merchants to become more loyal. Creating a flywheel, Amazon can invest more in Prime benefits and faster shipping, attracting more shoppers and more merchants.

Buffett is also impressed by Amazon’s cloud computing business, which accounts for the majority of Amazon’s operating income. The cloud computing business is likely to grow rapidly as artificial intelligence develops, and Amazon is investing heavily to keep up with rivals in the field. This includes a $4 billion investment by Anthropic to design its own artificial intelligence training and inference chips for its servers to support new large-scale language models and artificial intelligence-driven applications.

The rapid growth of Amazon’s cloud computing business and booming ad sales should support continued expansion of the company’s profit margins, resulting in strong free cash flow growth – management’s main metric for judging its financial performance.

Amazon’s price-to-sales ratio is just 3.29, still below its five-year average despite increasingly optimistic prospects for margin expansion.

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John Mackey is the former CEO of Amazon subsidiary Whole Foods Market and a board member of The Motley Fool. Adam Levy Has jobs at Amazon and Apple. The Motley Fool has positions and recommendations at Amazon, Apple, and Berkshire Hathaway. Motley Fool owned disclosure policy.

Warren Buffett invests US$157 billion in these two “Big 7” artificial intelligence (AI) stocks Originally published by The Motley Fool

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