• Berkshire CEO Warren Buffett expressed skepticism about artificial intelligence (AI)
• Several companies in the Berkshire portfolio working on AI development that could be among the big winners
• Some investments probably not made by Buffett himself
It is part of Warren Buffett’s investment philosophy to only invest in companies that have a strong competitive position and reliable growth and whose business model the investor understands. It is therefore more than unlikely that the oracle of Omaha would jump on the current hype with its holding company Berkshire Hathaway and invest in AI – especially since both Buffett and his Berkshire Vice Charlie Munger recently expressed skepticism about artificial intelligence. Munger told CNBC that there was “a lot of crazy hype” and exaggerated expectations about AI, and Buffett also expressed concerns to the US broadcaster. “If something can do all sorts of things, I get a little worried because I know we won’t be able to make it ‘uninvented’ again,” he said. Buffett is said to have questioned AI in the past, though he’s always said the technology isn’t his area of responsibility.
But despite the doubts expressed about the current hype, Berkshire Hathaway’s portfolio has long contained some stocks in companies that are benefiting from the current AI trend and could be at the forefront.
Buffett’s favorite investment, Apple, is already using AI
Shares in Apple – Buffett’s self-proclaimed favorite stock – make up by far the largest portion of Berkshire Hathaway’s portfolio at a good 46 percent. The investor took action here for the first time in May 2016 and now owns around 915.5 million Apple shares, which were worth around 151 billion US dollars at the end of the first quarter of 2023.
Even though Apple boss Tim Cook said during the conference call on the latest balance sheet presentation, according to “Mashable”, that one had to approach the topic of AI “consciously and prudently”, the group has already integrated some AI functions into its products. The AI-supported accident detection in newer models of iPhone and Apple Watch is just one example. FaceID, recognizing and matching people in photos, and natural language processing to help Siri better understand the user are also some examples of how AI and machine learning (ML) based on the Apple Neural Engine can be used on the iPhone are used.
“We see AI as massive and we will continue to carefully integrate it into our products,” Cook said on the conference call. According to GOBankingRates, the Apple CEO was also convinced that AI will ultimately affect “every product and service that we offer”. In fact, according to The Motley Fool, iGroup should benefit from increasing improvements in AI, as it could make the group’s products even better and more popular. Finally, hardware is also needed to interact with AI programs – and Apple devices could be preferred by numerous users due to the brand’s popularity here.
Amazon is also heavily involved in the AI area – competition to ChatGPT in progress
But there are also Buffett investments that are currently dealing more intensively with the development of AI. One of them is the online giant Amazon. Amazon shares have been in Berkshire Hathaway’s portfolio since the first quarter of 2019, and Warren Buffett has publicly expressed several times that he regrets not recognizing the company’s potential earlier. Nevertheless, according to “The Motley Fool”, it was not the star investor who initiated the initial investment in the online giant, but Todd Combs, one of the portfolio managers at Berkshire Hathaway. With a portfolio share of around 0.34 percent, Buffett’s Amazon position is also significantly smaller than the investment in Apple. Still, Amazon shares held by Berkshire Hathaway were worth around $1.09 billion at the end of the first quarter of 2023.
Amazon recently announced Bedrock, its own AI platform, which the company wants to establish as a direct competitor to the hyped chatbot ChatGPT. Vasi Philomin, vice president of generative AI at Amazon Web Services, said Bedrock will “apply machine learning to the real world, solving real business problems at scale,” according to GOBankingRates. In addition, it is believed that every application can be redesigned with generative AI – and Amazon apparently wants to be at the forefront. In addition to Bedrock, Amazon is also planning the new cloud infrastructure Amazon Elastic Compute Cloud P5 (Amazon EC2 P5) to achieve this goal. According to the company, it offers customers scalable computing capacities in the cloud. For example, according to The Motley Fool, Amazon EC2 P5 customers can scale up from 10,000 GPUs to 20,000 GPUs, giving them access to processing power comparable to a supercomputer. Companies could use Amazon WebServise (AWS) to train the most advanced commercial AI models ever. AWS is also a partner of graphics card manufacturer NVIDIA, whose chips are popular for AI applications. According to Amazon, “Customers around the world use […] AWS and NVIDIA solutions for machine learning (ML), virtual workstations, high performance computing (HPC) and IoT services”. This customer base could continue to grow due to the current hype and thus bring more sales to both companies.
But Amazon not only offers services in the field of artificial intelligence, but also relies on corresponding technologies itself. According to “The Motley Fool”, Amazon CEO Andy Jassy said that the company plans to build all of its business areas on large language models, so-called Large Language Models (LLM). These are large generative language models with artificial intelligence, such as ChatGPT. This is how you want to reinvent the customer experience from online shopping to advertising and entertainment. Amazon’s fulfillment centers also use 520,000 fully autonomous robots, according to The Motley Fool. Thanks to advances in AI, they are able to pick and pack goods 2.5 times more efficiently than human workers, according to the website. The Motley Fool estimates that Amazon could enter an industry expected to be worth $9 trillion by 2027 if the company decides to sell its robotic products to others.
Snowflake wants to support AI-driven data science applications
Another, rather small stake in Berkshire Hathaway’s portfolio is Snowflake’s shares. At the end of the first quarter of 2023, Buffett Holding owned approximately 6.1 million shares of the cloud computing company, valued at approximately $945 million. According to “The Motley Fool”, this investment was also initiated by portfolio manager Todd Combs, who had already used Snowflake’s services himself in his work and went directly to the company’s IPO in 2020 – an unusual step for Berkshire Hathaway, since the Buffett Holding usually stays out of IPOs.
Snowflake’s main product is the Data Cloud, which the company says brings together siled data spread across multiple different clouds. The company also offers its customers tools for data analysis. According to the company’s website, Snowflake’s entire platform was “designed from the ground up to support machine learning and AI-driven data science applications.” In addition, Snowflake announced in May the acquisition of Neeva “to accelerate search in the data cloud with generative AI”. Neeva has developed a search tool based on LLM that “uses generative AI and other innovations to enable users to query and discover data in new ways,” according to the press release. This search is now to be integrated into the data cloud.
During the first quarter of Snowflake’s fiscal 2024 fiscal year ended April 30, 2023, more than 1,500 customers used the company’s services to manage an AI, machine learning, or data science workload, according to The Motley Fool. Compared to the previous year, this corresponds to an increase of 91 percent. Overall, the ability to collect, combine and analyze large amounts of data is key for AI applications to achieve good results. According to the news site, Snowflake is therefore “perfectly positioned to drive these revolutionary technology trends and benefit from their further development”.
However, Snowflake is not yet able to capitalize on this on the stock exchange: Although Snowflake shares have increased by around 28 percent since the beginning of the year (as of the closing price on June 16, 2023), they have not yet recovered from their slump at the beginning of the year 2022 is recovering and trading well below its previous all-time high. It was therefore one of Berkshire Hathaway’s most disappointing investments in 2022. That may change this year given the AI hype.
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