As a 93-year-old best known for investments in legacy companies like Coca-Cola, GEICO and Bank of America, Warren Buffett is far from the image of a typical AI investor.
Nevertheless, multiple companies in the investing legend’s portfolio are leveraging artificial intelligence to continue growing and maintain their competitive moats.
In a small number of cases, these companies are even poised to become leaders in the emerging AI landscape.
Two AI stocks Warren Buffett owns that provide Berkshire Hathaway long-term exposure to artificial intelligence are Amazon and Snowflake. But what exactly makes them special when viewed through the AI lens?
Amazon
Amazon (NASDAQ:AMZN) is one of Buffett’s famously self-criticized “sins of omission.”
The Oracle of Omaha has admitted that he overlooked Amazon’s potential despite having several opportunities to invest in it. Buffett acknowledged the oversight many times over the years, and Amazon appeared to be the one that got away from the legendary investor’s portfolio.
Despite waiting decades to finally pull the trigger on Amazon, though, Buffett did finally buy a stake in the company in Q1 of 2019. At the time, Berkshire Hathaway bought about 9.7 million shares of AMZN for an average price of $83.22.
Later the same year, another block of just under 1.1 million shares was added to the Berkshire stake. With share prices now at over $190, Buffett’s shares have significantly more than doubled in only about five years.
At least part of this gain can be attributed to Amazon’s emerging status as one of the leading AI companies. The company’s cloud platform, Amazon Web Services (AWS), provides a range of AI tools businesses can use to improve customer service, manage and analyze data and enhance cybersecurity.
Amazon claims to already have 100,000 customers using its AI tools, a number that seems likely to rise as more small and medium-sized businesses take advantage of generative AI capabilities.
Amazon is also investing heavily to ensure it stays at the forefront of the AI world.
Earlier this year, the company announced a $4 billion investment in Anthropic, an AI startup that is developing next-generation models for business and public uses.
Via this partnership, Amazon is expected to be able to bring leading AI tools to businesses of all sizes. This could position it, alongside Microsoft, as a go-to AI solution provider.
Amazon has even invested in its own line of AI training chips, creating opportunities for the company to reduce its dependence on third-party suppliers like NVIDIA.
Though Amazon is unlikely to achieve full independence when it comes to chip supply, this effort may be crucial to avoid falling behind as demand for advanced chips continues to outpace supply.
Beyond these cutting-edge investments, Amazon is also deploying AI to create additional value in its core eCommerce business.
Large language models (LLMs) are being used to extract key data points from customer reviews, and more traditional forms of machine learning (ML) are used to make personalized product recommendations.
Marketing is among the most well-tested uses for AI tools, and Amazon’s deployment of new tools in this area will likely help it keep its revenues growing by driving even more sales on its platform.
From Buffett’s point of view, these developments are only likely to keep adding value to his already highly successful investment in Amazon.
Analysts project that earnings per share will continue to grow at over 20%over the coming 3-5 years, a pace that will likely put further upward pressure on AMZN share prices.
Over the coming 12 months, Amazon shares are projected to rise by about another 14.9%, adding even more gains for investors like Buffett who bought when share prices were low.
Snowflake
Cloud data management company Snowflake (NYSE:SNOW) became famous as the only stock Berkshire Hathaway ever bought at its IPO. The investment company bought $250 million worth of SNOW shares at the IPO price of $120.
With an additional 4 million shares purchased as the stock debuted and soared more than 110% in a single trading day, Buffett’s stake amounts to 6.1 million shares with an average cost basis of about $238 per share.
Unlike Amazon, though, Snowflake has been fairly unsuccessful for Berkshire over the long haul. Shares trade at about $135 at the time of this writing, only slightly above the IPO price and well below the average cost basis Berkshire paid for its stake.
In part, this is because of the company’s own fundamentals. Last fiscal year alone, Snowflake lost more than $836 million and delivered a net margin of -30.8%. The company’s revenue growth rate has also slowed considerably, raising concerns that the company could have a long road to its breakeven point.
More recently, Snowflake shares have fallen even further in light of a massive security breach disclosed in late May. Over the last three months, SNOW shares have fallen 11.6%, much of which is due to the market reacting negatively to this hack.
Notable Snowflake customers affected included Ticketmaster, LendingTree and Advance Auto Parts. In recent days, the news became even worse as AT&T revealed that the call and text records of virtually all of its customers had been compromised in association with the security breach at Snowflake.
Although there is little doubt that the company faces significant headwinds, it also has a very real opportunity in AI in front of it. Snowflake already counts many massive businesses among its customers, giving it opportunities to roll out AI products to high-value clients. Snowflake is actively hiring in AI talent and developing its own LLMs. As businesses continue to seek added value from AI data insights, Snowflake may be in a unique position to cater to the needs of enterprise-level customers.
Snowflake is also making strategic outside investments in its effort to become an AI leader. One prominent example was the company’s investment in Landing AI, a company specializing in AI vision.
With improved vision models, video and photo data can be structured and added to more traditional text datasets. This may one day make it easier for AI models to draw insights from large, diverse datasets.
For now, Buffett seems content to hold the Snowflake position in spite of its unimpressive performance to date. At just 0.2% of the Berkshire portfolio, SNOW shares are a risk that Buffett can likely afford to take.
If the company can move past the fallout of its security breach and capitalize on its opportunities in AI, it’s still quite possible that the investment could pay off for Berkshire in the long run.
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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
