Warren Buffett’s Berkshire Hathaway Embraces AI with Strategic Investments
Warren Buffett has led Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) since 1965, generating an impressive annual return of 19.8%. An initial investment of $1,000 at that time would have grown to over $42 million. In contrast, the same investment in the S&P 500 index would have reached only $308,115 during the same period.
Buffett’s success stems from his straightforward, long-term investment strategy. He seeks companies that demonstrate steady growth, consistent profitability, strong management, and shareholder-friendly practices like dividends and stock buybacks. His team avoids chasing the latest trends, even in popular sectors like artificial intelligence (AI).
Interestingly, four stocks in Berkshire’s $292 billion portfolio are harnessing AI to transform their businesses.
Image source: The Motley Fool.
1. Domino’s Pizza: 0.2% of Berkshire’s Portfolio
Domino’s Pizza (NYSE: DPZ) is the largest pizza chain globally, operating over 21,000 stores across 90 countries and serving more than one million customers daily. Berkshire added this stock to its portfolio in the third quarter of 2024 (ended Sept. 30), showcasing confidence in the company amid a period when the conglomerate generally sold off other stocks.
AI is central to Domino’s operations, enhancing efficiency, reducing costs, and increasing profits. The technology can even predict when to start pizza preparations before an order is fully placed, ensuring quicker delivery times.
Additionally, Domino’s uses Microsoft‘s Azure OpenAI platform to develop robust AI assistants for its website, improving customer order interactions. AI also streamlines in-store management, aiding with tasks like inventory tracking and employee scheduling.
2. Amazon: 0.7% of Berkshire’s Portfolio
Amazon (NASDAQ: AMZN), the world leader in e-commerce, garners attention for its Amazon Web Services (AWS) unit, which is a frontrunner in three key AI domains:
- Infrastructure: AWS utilizes advanced AI chips from suppliers like Nvidia and has developed its own chips, Trainium and Inferentia, which can significantly cut AI training costs.
- Large Language Models (LLMs): Amazon offers a family of LLMs called Titan and hosts leading third-party models on its AWS Bedrock platform, facilitating quicker AI chatbot and software application development.
- Software: AWS introduced an AI tool named Q, capable of answering internal data queries and generating code on demand, positioning it as a top assistant for software developers.
In the third quarter of 2024, Amazon reported triple-digit growth in AI revenue within AWS compared to the year prior, outpacing the overall growth of its cloud division. Berkshire’s investment in Amazon since 2019 reflects Buffett’s recognition of the company’s long-term potential despite it comprising only 0.7% of the overall portfolio.
3. Coca-Cola: 8.4% of Berkshire’s Portfolio
Berkshire made a significant investment in Coca-Cola (NYSE: KO) from 1988 to 1994, acquiring 400 million shares for $1.3 billion, which are now valued at approximately $24.7 billion. While AI wasn’t considered at the time, it is becoming vital for Coca-Cola’s future.
The company appointed a chief of generative AI last year to leverage this technology in creating marketing campaigns and unique products, such as the promotional Coca-Cola Y3000, which envisions future flavors through customer data analysis.
In April, Coca-Cola also announced a $1.1 billion five-year partnership with Microsoft Azure aimed at optimizing its supply chains and marketing efforts.
4. Apple: 23.1% of Berkshire’s Portfolio
Apple (NASDAQ: AAPL) stands as Berkshire’s most significant investment. Although it once comprised nearly 50% of the portfolio, Buffett has reduced holdings by selling more than half so far in 2024. One reason for his sell-off relates to concerns over potential future capital gains taxes.
Despite recent selling, Apple is poised to capitalize on emerging AI opportunities. The company is launching its Apple Intelligence software in its latest devices, developed in conjunction with OpenAI. This new feature can summarize messages, generate text and images, and enhance Siri’s capabilities with ChatGPT insights.
Though Berkshire has decreased its Apple stake, Buffett anticipates Apple will continue being the largest holding, suggesting that if Apple’s AI strategies succeed, it may yield considerable returns for the conglomerate moving forward.
Final Thoughts on Lucrative Opportunities
Investors often wonder if they missed prime chances in stocking up on successful companies. Seasoned analysts sometimes identify opportunities with the potential for significant growth, referred to as “Double Down” stocks. Here are some past results:
- Nvidia: Another $1,000 investment since a recommendation in 2009 would have grown to an astonishing $380,291!
- Apple: A $1,000 investment from 2008 is now worth $43,278!
- Netflix: $1,000 invested based on a 2004 recommendation would be worth $484,003!
Currently, analysts have identified three more “Double Down” stocks, suggesting now might be the best time to invest before these opportunities pass by.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 18, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook, is a member of the same board. Anthony Di Pizio has no positions in any stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Apple, Berkshire Hathaway, Domino’s Pizza, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends options including long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
