According to a forecast by PricewaterhouseCoopers, the global economic impact of artificial intelligence, or AI, is projected to reach $15.7 trillion by the year 2030.
In the financial world, AI’s growth has attracted significant investments including Warren Buffett’s investment company, Berkshire Hathaway. Berkshire Hathaway has allocated more than $160 billion, or over 40% of its $375 billion portfolio, to just three AI-focused stocks.
This strategic investment reflects the conviction in the transformative potential of artificial intelligence and machine learning, and provides insight into the long-term opportunities seen by some of the world’s most seasoned investors.
Warren Buffett’s Berkshire Hathaway has a substantial investment in Apple, holding approximately $164 billion, or about 44% of its stock portfolio.
This investment underscores both Apple’s AI innovation and its broader strengths such as global brand recognition, customer loyalty, and impressive cash flow. Apple’s commitment to AI became evident in 2011 with Siri’s introduction to the iPhone 4s, and since then, voice-command technology has become standard in all iPhones, setting an industry trend.
But Apple’s AI integration goes further, powering features like autocorrect, word suggestions, and advanced photo recognition that identifies pets along with people. AI’s influence also extends to other Apple products, including the Apple Watch and the newly announced virtual/augmented reality Vision Pro headset.
Buffett and his investment team, Todd Combs and Ted Weschler, didn’t invest in Apple solely for its AI technology.
They were equally attracted to the brand’s strength, customer loyalty, and the consistent cash flow generated by the company. Additionally, Buffett is known to appreciate Apple’s substantial capital-return program, which includes over $15 billion in annual dividend payments and a stock buyback strategy that has seen the repurchase of approximately $586 billion of common stock over the past decade.
This strategic approach aligns with Buffett’s investment philosophy, allowing Berkshire Hathaway to increase its stake in Apple without additional capital deployment.
The second major artificial intelligence investment that Warren Buffett and his team at Berkshire Hathaway have made is in e-commerce giant Amazon.
As of the close of trading at the end of July 2023, Berkshire’s holding of more than 10.5 million Amazon shares was valued at $1.36 billion.
Amazon utilizes AI in several key areas within its globally dominant online marketplace. Its AI-powered recommendation engine, for instance, analyzes customers’ views, purchases, and cart additions to suggest new products.
Moreover, the company promotes the use of its AI-assistant Alexa for voice-enabled purchasing. As of the end of 2022, Alexa controlled more than 28% of the global smart-speaker market, a lead of 11 percentage points over the second-largest player, Alphabet’s Google Nest.
Beyond its online marketplace, Amazon incorporates AI solutions within its cloud infrastructure segment, Amazon Web Services. As Amazon’s principal driver of operating cash flow and operating income, Amazon Web Services enables businesses to create applications with generative AI and leverage machine learning to enhance customer interactions.
For the first half of 2023, Amazon Web Services has generated substantial revenue and profits, with $43.5 billion in sales, accounting 16.6% of Amazon’s net sales and $10.5 billion in operating income.
The third significant AI-related investment by Warren Buffett and his team at Berkshire Hathaway is in the data-warehousing company, Snowflake.
As of the closing bell on August 3, Berkshire Hathaway’s holdings in Snowflake were valued at $987 million. Along with their positions in Apple and Amazon, this investment represents a collective 44% of Berkshire’s invested assets.
Snowflake is renowned for its cloud infrastructure, built atop leading cloud infrastructure services, which simplifies data-sharing across platforms, making it seamless for its members. A notable development in 2023 has been Snowflake’s expansion into generative AI solutions for its vendors’ data clouds. In May, the company completed its acquisition of Neeva, a firm known for leveraging generative AI and large language model technology.
Furthermore, Snowflake has forged a partnership with Nvidia, a prominent GPU designer and retailer considered a key player in high-compute data centers. This collaboration provides Snowflake users access to Nvidia’s high-powered GPUs.
However, Snowflake’s stock does present some concerns.
Its valuation is considerably high relative to other cloud businesses, with shares trading at nearly 15 times sales and 163 times consensus forward-year earnings. This premium valuation is underscored by Snowflake’s full-year sales growth decline in recent quarters as businesses curtail short-term spending.
Berkshire Hathaway’s significant investment in these three AI-centric companies illustrates a strong belief in the transformative potential of artificial intelligence and its impact on the global economy.