Buffett’s Berkshire Hathaway Achieves 19.9% Annual Growth

Warren Buffett, leading Berkshire Hathaway, reported a 19.9% compounded annual growth over nearly 60 years, while the S&P 500 achieved a 10.4% increase. This performance has increased his portfolio to $258 billion at the end of the last quarter.

While Buffett’s largest investment is in Apple, he typically avoids technology stocks. Despite this, some of his investment strategies can help identify viable options, even in the artificial intelligence sector.

Identifying Smart Buys in AI

Buffett emphasizes two key factors in his investment choices: valuation and competitive advantage. He seeks stocks that are undervalued and possess sustainable market leadership. Here are two AI stocks that align with these principles.

1. Alphabet

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) remains a daily staple for many, owning Google Search, which commands approximately 90% market share. This dominance has significantly contributed to its revenue growth through advertising.

The competitive advantage of its search engine remains robust. The phrase “Google it” has become synonymous with online searching, ensuring continued leadership as long as performance remains high.

Alphabet is also investing heavily in AI, creating a large language model, Gemini, to enhance Google Search capabilities. This not only retains existing advertisers but could attract more spending as user satisfaction grows.

Furthermore, Alphabet’s AI investments are bolstering its Google Cloud, which has consistently posted double-digit revenue growth. Currently, Alphabet trades at 18 times forward earnings, making it the most affordable among the Magnificent Seven tech stocks.

2. Nvidia

Nvidia (NASDAQ: NVDA) has emerged as a leader in the AI chip market, leading to record revenue and profits. Despite its success, the stock is not expected to face a downturn soon, owing to its reputation for quality and continuous innovation.

The company refreshes its AI chip lineup annually, limiting opportunities for competitors to catch up. Founding CEO Jensen Huang’s leadership also contributes to Nvidia’s success. His resourcefulness and problem-solving skills have kept the company ahead in its field.

Nvidia’s stock is currently trading at 31 times forward earnings estimates, down from 50 times earlier this year, making it a strong prospect according to Buffett’s investment philosophy.

Investment Considerations for Nvidia

Before investing in Nvidia, consider this insight: the Motley Fool Stock Advisor analyst team has highlighted other stocks they believe present better investment opportunities right now.

Historically, stocks like Netflix and Nvidia have generated substantial returns for early investors.

Overall, Nvidia’s strategic position, quality management, and current valuation make it an attractive option for long-term wealth building.

Suzanne Frey, an executive at Alphabet, is on The Motley Fool’s board. Adria Cimino holds no positions in the stocks mentioned. The Motley Fool recommends Alphabet, Apple, Berkshire Hathaway, and Nvidia.

The views expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.