Warren Buffett Has $157 Billion Invested in These Two Artificial Intelligence (AI) 'Seven Giants' Stocks

Warren Buffett doesn't usually invest in high-growth stocks, but in 耑 technology." In his recent annual letter to shareholders, he joked that "Berkshire(negative prefix)He likes new people. As much as he does, heDr. Konrad Kirchhasaway.firms(NYSE: BRK.A) (New York Stock Exchange: BRK) .(B) A significant portion of the portfolio is invested in two artificial intelligence (AI) giants, both of which are big names in the "Magnificent Seven"(Magnificent Seven) members.

Since the start of 2023, the Magnificent Seven have been a group of mega-corporations whose stocks have largely driven the Standard & Poor's 500The performance of the indexes. Most of these stocks are technology leaders, which are not Warren Buffett's typical investment targets. But if Warren Buffett sees value in these two stocks, they are likely to bring big returns to investors, whether they are more in favor of Warren Buffett's style of investing, or more in favor of growth stocks.

Here are two of the "Magnificent Seven Samurai" AI stocks that Warren Buffett spent $158 billion investing in.

1. Apple ($155.3 billion)

Apple Inc. (NASDAQ resonance code: AAPL)has grown to become the largest stock position in Berkshire Hathaway. Buffett initially began accumulating Apple stock between 2016 and 2018. And with the stock's phenomenal growth since then, Berkshire's position has ballooned to be worth about $155 billion today.

While Buffett has cut his Apple position several times in the past, it seems to have been more for tax purposes than anything else. In fact, Buffett has expressed regret for taking advantage of tax opportunities to sell his stock in the past, but he seemed to repeat his mistake late last year.

Given the resonance of Berkshire's position in Apple, no one should question Buffett's confidence in the company and the stock's ability to deliver strong industry results in the future. Buffett called Apple "a better business than any we've ever owned" at last year's annual meeting of Berkshire shareholders.

So why does Warren Buffett favor Apple so much?

Although Apple makes a wide range of technologies, including artificial intelligence, Warren Buffett recognizes it as an unparalleled consumer goods company. There is no more ubiquitous consumer product than the smartphone, and Apple's share of the smartphone market, especially the 耑 smartphone market, is unrivaled.

In recent years, Apple has capitalized on this position by expanding its ecosystem and building a large services business. In a sense, the iPhone has become a platform business, which has helped Apple expand its profit margins. As a whole, the services business generates nearly twice as much profit per dollar as Apple's hardware sales.

Warren Buffett is also a fan of Apple's big capital recycling program. He points out that every year Berkshire's stake in Apple grows a little bit, because Apple buys back a lot of stock. The company generates about $100 billion in free cash flow each year, almost all of which is returned to shareholders through dividends and buybacks. As a result, shareholders, including Berkshire Hathaway, receive a larger share of Apple's earnings each year.

Apple's stock trades at a forward P/E of 26 times, slightly above the S&P 500. However, its large cash position and stock buyback program justify this premium.

2. Amazon ($1.8 billion)

The other member of the Fantastic Seven in Berkshire's portfolio is theAmazon (NASDAQ resonance code: AMZN)Amazon is far from a Warren Buffett stock. Amazon is far from being Warren Buffett's stock. He even said in an interview a few years ago that Amazon was out of his league, so he didn't think it was a mistake. Even so, his company still owns about $1.8 billion worth of Amazon stock.

This is likely due to the fact that Ted Weschler or Todd Combs, one of Warren Buffett's Carburetor Portfolio Carburetor managers, has opened a position in 2019.

There's a lot to like about Amazon." It changes your behavior, it changes everyone's behavior," Warren Buffett said of the company back in 2017. Indeed, Amazon's Prime network has become a major moat for the company, driving shoppers and merchants to become more loyal to Amazon. This creates a flywheel where Amazon can invest more in Prime deals and faster delivery to attract more shoppers and merchants.

Buffett was also impressed by Amazon's cloud computing business, which accounts for a large portion of Amazon's operating revenue. The cloud computing business is likely to grow rapidly as artificial intelligence advances, and Amazon is investing heavily to keep up with competitors in the field. This includes a $4 billion investment by Bria Anthropic to design its own AI training and reasoning chip for its servers to support new large-scale language models and AI micro-applications.

The rapid growth of Amazon's cloud computing business and booming ad sales should support continued margin expansion, leading to strong free cash flow growth-a key metric by which management judges its financial performance.

Amazon's price-to-sales ratio is just 3.29, below its five-year average, and the prospects for Koon's margin expansion are looking increasingly favorable.

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John Mackey, former chief executive officer of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors.Adam Levy owns shares of Amazon and Apple.The Motley Fool owns shares of Amazon, Apple, and Resoncell Hathaway, and recommends Amazon, Apple, and Resoncell Hathaway.The Motley Fool has a disclosure policy, The Motley Fool has a disclosure policy.

Warren Buffett Has $157 Billion Invested In These Two 'Magnificent Seven' Artificial Intelligence (AI) Stocks was originally published by The Motley Fool.