Investing Insights: Evaluating Apple and Amazon in Berkshire Hathaway’s Portfolio
Berkshire Hathaway serves as an insightful case study for individual investors. The company, managed by Warren Buffett, boasts a portfolio valued at $259 billion. A significant 23% of this amount is currently allocated to two prominent artificial intelligence stocks: 22.1% in Apple (NASDAQ: AAPL) and 0.7% in Amazon (NASDAQ: AMZN).
Wall Street holds an optimistic view regarding both companies, as indicated by the significant upside reflected in the median 12-month target prices outlined below:
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- Among the 40 analysts covering Apple, the median target price is $250 per share, suggesting a 32% upside from the current price of $189.
- Among the 76 analysts following Amazon, the median target price is $268 per share, implying a 50% upside from the current price of $179.
Here’s what investors should know about Apple and Amazon.
Apple: A Major Holdings in Berkshire Hathaway’s Portfolio
Apple continues to dominate in smartphone sales and led the market with a 23% share of smartphone shipments in the fourth quarter. The company demonstrates robust pricing power, evidenced by the fact that the average iPhone sells for three times more than the typical Samsung smartphone.
Despite market share gains, Apple faced challenges with a decline in U.S. smartphone sales, resulting in a modest revenue increase of 4% to $124 billion in the December quarter. Although GAAP net income rose 10% to $2.40 per diluted share, stock buybacks, rather than significant sales growth, drove this performance.
Tariffs pose a notable challenge for companies like Apple, particularly since the bulk of its iPhones are manufactured in China. The product segment accounts for over half of Apple’s total revenue. President Trump has imposed tariffs amounting to 145% on Chinese imports, which stands in stark contrast to the average import tax rate during the Biden administration.
To maintain demand, Apple has two choices: absorb the increased costs, risking profit margins, or pass the costs to consumers, which could deter demand. This trade war may also provoke backlash from Chinese consumers, potentially affecting sales in a key market.
Another challenge looms for Apple, which recently introduced artificial intelligence (AI) features for its iPhone 16 models named Apple Intelligence. Although this was intended to initiate a significant upgrade cycle, consumer reaction has been lukewarm, and the anticipated upgrade cycle hasn’t materialized.
Wall Street projects Apple’s earnings to grow at an annual rate of 10% through fiscal 2026, which ends in September 2026. This growth rate raises questions about the stock’s current valuation of 27 times earnings, particularly as analysts lower their earnings estimates amid trade policy uncertainties. It may be prudent to avoid purchasing the stock at this time.
Nonetheless, Apple currently trades at 26 times forward earnings, which represents a significant discount compared to its two-year average of 30 times forward earnings. For investors willing to accept tariff-related risks, acquiring a small position near the current share price of $189 might be reasonable. Buffett’s substantial investment in Apple indicates his confidence in the company, as it remains Berkshire’s largest holding.
Image source: Getty Images.
Amazon: A Smaller Stake in Berkshire Hathaway’s Holdings
Amazon operates across three significant industries and maintains a strong footing in each. It leads the e-commerce marketplace in North America and Western Europe, stands as the third-largest advertising technology company globally, and dominates the public cloud sector through Amazon Web Services (AWS).
For the fourth quarter, Amazon reported impressive financial results. Total revenue increased by 10% to $187 billion, driven by remarkable growth in advertising and cloud services. GAAP net income surged 86% to $1.86 per diluted share. Analysts foresee robust earnings growth for Amazon, in part due to AWS’s strength in monetizing AI applications.
Moreover, Amazon is utilizing generative AI and robotics within its retail operations to enhance profitability and improve customer experiences. Innovations include tools for sellers to facilitate product listings, optimize warehouse inventory, and enable communications between fulfillment center workers and robots. Amazon is currently building around 1,000 generative AI applications to promote cost efficiency.
Amazon’s advertising sector is thriving, thanks to its ability to engage consumers and gather data. Revenue from advertising services surged 18% in the fourth quarter. The recent launch of Amazon Retail Ad Service, which assists retailers in creating engaging sponsored content, could further enhance this business segment.
Wall Street predicts that Amazon’s earnings will rise by 14% this year. This places the company’s current valuation at 32 times earnings—falling between reasonable and excessive. However, analysts have historically underestimated Amazon, as evidenced by the company’s average 22% beat over consensus estimates in the last four quarters. I anticipate this trend to continue as investments in AI and robotics yield returns. For patient investors, acquiring shares at approximately $179 may be worthwhile.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
The views expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
