Key Points
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Buffett invested in three AI stocks despite his hesitance to purchase tech stocks.
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Greg Abel has committed to one of Buffett’s biggest investments and tripled down on another.
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Not every artificial intelligence stock in Berkshire’s portfolio is a buy right now.
Warren Buffett has never been a big technology stock investor. He stuck to companies he understood, and that served him and Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) investors well during his 60-year tenure as CEO. But that also led him to fall behind a bit in recent years, by his own admission.
“I would say I understand fewer of the businesses as a percentage of the whole than I did 10 years ago,” he said in a recent interview. “I have not learned new industries for some years.” Nonetheless, he oversaw the purchase of three stocks closely tied to the largest technology trend in recent history: artificial intelligence.
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Buffett’s successor, Greg Abel, has pushed the concentration of those holdings to 28% of invested assets after his first quarter in charge of the portfolio.
A close up of Warren Buffett.
Image source: The Motley Fool.
1. Apple (21.4%)
Apple (NASDAQ: AAPL) may be Buffett’s single best investment as head of Berkshire. He initially purchased shares for the portfolio in 2016, building a sizable position over the next two years. At one point, the stock accounted for half of Berkshire’s invested assets before Buffett started trimming the position. “I’m very happy to have it be our largest holding,” Buffett said in an interview in March. “I was not happy to have it be as large as almost everything else combined.”
It seems Abel agrees with that sentiment. He’s said Apple will be a core holding in Berkshire’s portfolio, and shareholders can expect very little selling activity from here on out.
Apple has continued to perform well, with its recent results driven by a strong iPhone refresh cycle and continued growth for the high-margin services business. That could gain further steam later this year, as Apple plans to release a revamped Siri personal assistant with more AI-powered capabilities. Higher-end AI features could push existing iPhone users to upgrade to devices capable of using them, and they could open the door for new services sold directly by Apple or through its App Store.
Apple currently faces a challenging environment as memory prices soar due to demand from AI data centers. Management said that it will weigh on its gross margin over the next few quarters, but the company is better positioned to manage rising component costs than any of its competitors. That could enable it to grab market share or maintain better profit margins, and management could manage both with a good pricing strategy and a broadening device portfolio.
The market also likes Apple’s position, and it’s rewarded shareholders accordingly. After climbing 15% so far this year, the stock now trades at a P/E ratio of nearly 36 times analysts’ forward estimates. That’s fairly expensive, so it’s unlikely Abel is planning to re-add to Berkshire’s position, but he seems happy to hold the stock.
2. Alphabet (6.8%)
Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) was one of Buffett’s last big purchases as CEO. The Oracle of Omaha oversaw the addition of about 18 million shares of the tech giant to the portfolio last year. Abel tripled down on the stock in the first quarter, and after a strong earnings report sent shares higher, the stock now accounts for nearly 7% of the invested portfolio value.
Over the past year, Alphabet’s AI efforts have begun to deliver results, both financially and relative to the performance of competing products. Its Gemini family of models can go toe-to-toe with those from Anthropic and OpenAI. Its Tensor Processing Units (TPUs) are gaining traction among developers seeking better price performance than GPUs.
Alphabet is spending heavily to expand its cloud computing business, but it’s seeing rapidly accelerating revenue growth along with it. Google Cloud revenue climbed 63% year over year last quarter and operating margin expanded from 17.8% last year to 32.9% this year. Integrating its AI efforts into Search and advertising has also produced excellent results, leading to revenue acceleration for Search thanks to increased engagement and better ad targeting driven by AI.
While the market has sent the stock 24% higher since the start of the year, it still trades at just 27 times forward earnings expectations. That looks like a very compelling value for one of the fastest-growing hyperscalers in the market. While it’s a higher multiple than Buffett or Abel paid for Berkshire’s current position, it still looks like a good stock to deploy additional capital.
3. Nucor (0.3%)
Nucor (NYSE: NUE) might not seem like an AI stock at first blush, but the steel manufacturer has tied itself closely to data center buildouts in recent years, benefiting from the massive capital expenditure budgets of U.S. hyperscalers. With the 2024 acquisition of Southwest Data Products and a push to supply more data center needs, management says it’s now capable of supplying 95% of the steel needed to build a data center.
The combination of rapid data center buildouts and the Trump administration’s tariffs on foreign steel has led to strong pricing power for Nucor. “The data center market continues to be really strong for us. That’s where we’re seeing a lot of our price increasing,” CFO Jack Sullivan said during Nucor’s first-quarter earnings call. “And our backlog pricing has benefited from that and will continue to over the course of the year.”
Both the steel mill and raw materials segments have benefited from higher pricing, pushing net income significantly higher. Overall, earnings per share climbed 382% year over year last quarter and nearly doubled from the fourth quarter. Management’s second-quarter outlook suggests pricing will continue to support strong earnings growth.
Pricing could ease starting next year, as it opens new facilities scheduled to start production in 2027 and 2028. Still, analysts expect it to deliver steady earnings-per-share growth over the next couple of years. Eventually, however, earnings will drop as the demand cycle shifts downward. At around 17 times trailing earnings, the stock looks somewhat expensive relative to its historic mid-cycle valuation.
Abel notably sold some of Berkshire’s position last quarter, ahead of its strong first-quarter earnings release. Whether those results are good enough for him to keep the stock in the portfolio remains to be seen.
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Adam Levy has positions in Alphabet and Apple. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
