Warren Buffett’s Foray into Artificial Intelligence Stocks

Warren Buffett's Foray into Artificial Intelligence Stocks: The Oracle of Omaha's Surprising AI Bets Across Berkshire Hathaway Holdings

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, is known for his value investing strategy of buying quality companies trading at reasonable valuations. While Buffett has admitted he doesn’t fully understand artificial intelligence (AI), Berkshire Hathaway and its subsidiaries own several stocks with exposure to this high-growth technology.

Alphabet Tops the List

Alphabet, parent company of Google, is Buffett’s top AI stock pick, owned through Berkshire subsidiary New England Asset Management (NEAM). Google has been a leader in AI research and development through its DeepMind division. AI powers many Google services, like search, voice assistant, translation, and more. As Google Cloud grows its cloud infrastructure business, AI will provide a tailwind. Alphabet has an attractive valuation, with a price-to-earnings-growth (PEG) ratio around 1.2.

Amazon and AI-Enabled Growth

Amazon is a direct Berkshire holding, although Buffett has said one of his investment managers made the purchase. Amazon uses AI across its massive e-commerce and cloud computing operations to optimize recommendations, supply chain, fulfillment, and more. The machine learning prowess of Amazon Web Services (AWS) will help it gain cloud market share. AI and automation will likely propel growth for Amazon.

Apple’s Ecosystem Powered by AI

Apple is Berkshire’s largest stock position, reflecting Buffett’s admiration of the company. While not an obvious AI play, Apple acquires many AI and machine learning startups. AI powers Apple recommendations, Siri, the camera, and future products like its rumored augmented reality glasses. Apple’s valuable ecosystem of hardware, software, and services positions it well to benefit from AI technology.

Microsoft Partners with AI Leader OpenAI

Microsoft is a NEAM holding capitalizing on the recent generative AI explosion through a partnership with ChatGPT creator OpenAI. AI makes Microsoft’s Office suite more useful by enabling better document creation, analysis, translation, and more. The Azure cloud platform stands to grow as AI adoption increases.

Snowflake Integrates AI into its Data Cloud

Berkshire invested in Snowflake’s IPO in 2020, credited to Todd Combs. Snowflake provides a data cloud that integrates AI to help customers glean insights. While Snowflake’s valuation is extremely high, its product could become more intelligent with AI.

Taiwan Semiconductor Powers AI Chips

Taiwan Semiconductor Manufacturing Company (TSMC), owned by NEAM, is the dominant semiconductor foundry with nearly 60% market share. TSMC produces advanced chips powering AI applications. Geopolitical risks associated with Taiwan dampen the outlook.

Qualcomm Capitalizes on AI Chip Opportunity

Qualcomm, another NEAM stock, produces smartphone chips and has emerged as a leader in AI chips for mobile. With 5G expanding globally, Qualcomm has an opportunity with AI inferencing on devices. The reliance on Apple as a customer is a downside for Qualcomm.

Broadcom Supplies Google’s AI Chips

Broadcom supplies AI chips to Google and others. While Google recently reaffirmed its partnership with Broadcom, there is a risk Google decides to design its own AI chips down the road. Broadcom appears undervalued relative to other AI chipmakers.

NXP Semiconductors Focuses on Auto Chips

NXP Semiconductors, owned by NEAM, provides chips enabling sophisticated applications like automated driving. As vehicles become more autonomous using AI and sensors, NXP should benefit. However, automotive is a competitive space.

Cisco Bets Big on AI

Networking giant Cisco views AI as a major opportunity, especially around optimizing networks and cybersecurity. But analysts think it will take time for Cisco’s AI products to drive meaningful growth. The stock appears reasonably valued.

IBM Still Relevant in AI with Watson

IBM was previously owned directly by Berkshire but is now just a NEAM holding. IBM remains an AI player through its Watson platform, though growth is muted. IBM’s cheap valuation and 4.7% dividend yield provide some appeal.

Texas Instruments Has AI Potential

Texas Instruments, while facing some near-term headwinds like the rest of the semiconductor sector, produces chips that power various AI applications. It likely has a long runway to grow from proliferation of AI but is rated Buffett’s worst AI stock currently based on other issues.

Conclusion: Buffett Dips a Toe in AI Waters

While Buffett isn’t ready to plunge headfirst into unknown tech areas like AI, he recognizes the vital role it plays for many Berkshire holdings. Companies like Alphabet, Amazon, Apple, and Microsoft incorporating AI throughout their products and services are well positioned for the AI revolution, making them smart long-term bets.