Warren Buffett’s secret $690 million portfolio is invested in 5 artificial intelligence (AI) stocks | Fool

No game-changing innovation is attracting more attention on Wall Street this year than artificial intelligence (AI).

AI involves using software and systems to handle tasks typically assigned to humans. What’s important is the incorporation of machine learning (ML), which allows software and systems to “learn” and evolve over time. This development is expected to add $15.7 trillion to the global economy by 2030, according to a PwC report.

The potential for innovation and the huge numbers behind AI have attracted a lot of attention from Wall Street’s most successful money managers – and that includes billionaire CEO Warren Buffett of Berkshire Hathaway (BRK.A 0.05%) (BRK.B 0.04%), along with its investment team. Nearly half of Berkshire’s $365 billion portfolio is invested in three AI stocks.

Berkshire Hathaway CEO Warren Buffett. Photo source: The Motley Fool.

However, Berkshire’s exposure to AI doesn’t stop there. Thanks to its acquisition of reinsurance company General Re 25 years ago, Berkshire Hathaway also owns specialty investment company New England Asset Management (NEAM). Although the Oracle of Omaha does not oversee NEAM’s investment portfolio as he does with Berkshire Hathaway’s core portfolio, NEAM’s $690 million in investment assets remains a part of Buffett’s company. So that’s Warren Buffett’s secret investment portfolio.

Based on Form 13F filings, as of June 30, Warren Buffett’s secret $690 million portfolio held shares of five artificial intelligence stocks. Market value as of ending September 1, 2023.

Alphabet (class A shares, GOOGL): market value is 4,124,064 USD

The first AI stock you’ll find in the Oracle of Omaha’s hidden portfolio is Alphabet (GOOGL 0.59%) (GOOG 0.61%), the parent company of the internet search engine Google and the streaming platform YouTube, and its many subsidiaries. New England Asset Management owned 30,400 Class A shares (GOOGL) of Alphabet as of the end of June and had a market value of $4.1 million as of September 1, 2023.

Alphabet is using AI in a variety of ways. Most notably, it is being deployed through Google to further improve the quality of search results for the world’s leading internet search engine. It is also being used on YouTube, the second most visited social platform in the world, to remove content that violates its terms of service.

What may not be obvious is that Alphabet is relying on AI solutions in Google Cloud, the company’s cloud infrastructure offering. Google’s AI-driven ML solutions enable businesses to build their own models that can analyze large amounts of user data and make predictions about how they will respond to potential changes. changes (e.g. new product introductions, advertising changes, etc.).

Of course, Alphabet’s main attraction is still the world’s leading search engine. Since April 2015, Google has never had less than 90% of the global internet search market share. This virtual monopoly on search makes Alphabet a predictable cash cow.

Taiwan Semiconductor Manufacturing Company: market value is 2,080,467 USD

The second AI stock you will find in Warren Buffett’s secret portfolio is Taiwan Semiconductor Manufacturing Company (TSM -2.40%), commonly known as “TSMC.” New England Asset Management held 22,325 TSMC shares as of the end of the second quarter.

TSMC serves as the supply chain backbone of the AI ​​movement. This is the world’s leading chip manufacturing company and is currently a key company in the production of graphics processing units (GPUs) used to increase the processing speed of high-computing data centers. Main AI-GPU players, incl Nvidia (NVDA -1.74%) And Advanced Micro Devicesrelies on TSMC for production.

Interestingly, Nvidia, which was once part of Buffett’s secret portfolio, achieved maximum A100 and H100 GPU sales due to insufficient chip-on-wafer-on-die (CoWoS) capacity at TSMC. TSMC is in the process of doubling its CoWoS capacity, which will hopefully alleviate the AI-GPU supply and demand imbalance that Nvidia is facing.

Photo source: Apple.

Apple: market value is 2,384,165 USD

The third artificial intelligence stock you’ll find in Warren Buffett’s secret $690 million portfolio is the least surprising: technology stocks Apple (AAPL -2.92%). Apple is the top holding company, by significantly in the portfolio that the Oracle of Omaha oversees at Berkshire Hathaway. As of June 30, NEAM held 12,584 Apple shares.

While AI has seemingly become an unmissable trend over the past few months, it has been integrated into Apple’s physical products for more than a decade. Apple’s introduction of the voice-based digital assistant Siri in 2011, along with the continued development of ML through autocorrect technology, are examples of how AI is changing the utility of my product.

The company’s Vision Pro virtual/augmented reality headset, expected to go on sale next year, is a further example of innovation and AI integration. Vision Pro relies on eye tracking and hand movement tracking among other features.

But as I’ve pointed out many times, Apple’s appeal tends to lie in its capital return program and cash flow consistency. Apple has repurchased more than $600 billion worth of common stock since introducing its stock buyback program in 2013, and it generated more than $113 billion in operating cash flow over the past 12-month period.

NXP Semiconductor: market value is 9,374,714 USD

The fourth AI stock that Warren Buffett’s secret portfolio is invested in is NXP Semiconductor (NXPI -1.82%). As of the end of June, NEAM was holding 44,650 NXP shares, worth nearly $9.4 million as of September 1.

NXP’s relationship with AI can mainly be traced to the various processors and microcontrollers used in next-generation vehicles. For example, in January, NXP introduced the i.MX 95 family of application processors, responsible for ensuring critical safety functions are met in next-generation vehicles.

NXP Semiconductors also has processing applications beyond the automotive industry. Its ML and deep learning solutions are used by Internet-of-Things (IoT) applications and in the industrial sector. This can include simple things like securing a home WiFi connection or ensuring the security of an industrial network.

While some AI stocks trade at lofty valuations, NXP Semiconductors offers its shareholders a discounted forward price-to-earnings (P/E) ratio of just 14.

Broadcom: market value is 13,074,712 USD

The fifth and final AI stock held by Warren Buffett’s secretive $690 million portfolio is the semiconductor solutions specialist Broadcom (AVGO -1.75%). The 14,985 shares Broadcom held as of the end of June – nearly $13 million in market value – make this NEAM’s biggest bet on AI.

Arguably the most interesting AI solution announced by Broadcom to date is the Jericho3-AI chip. This networking chip, introduced by Broadcom in April, is capable of scaling connectivity to 32,000 high-power GPUs in AI-accelerated data centers. In short, Jericho3-AI is a middleman whose job is to maximize network usage and virtually eliminate the possibility of traffic congestion.

However, NEAM’s investment team may not have put the fund’s capital in Broadcom to Jericho3-AI. Rather, it probably has a lot to do with the 5G revolution. Broadcom generates a significant percentage of its revenue from providing wireless chips and solutions used in next-generation smartphones. Wireless infrastructure being upgraded to support 5G download speeds has kicked off a device replacement cycle that will continue through the middle of the decade, if not beyond.

Broadcom’s backlog is also nothing to scoff at. As of July 31, 2022, the company was carrying a backlog of $31 billion. Although CEO Hock Tan did not clear the company’s backlog of orders in a timely manner this year, bookings nearly a year in advance show that demand for the company’s products remains strong.