This innovative tech company has quickly become a leader in AI.
Artificial intelligence (AI) is all the rage these days. The best investors on Wall Street have taken notice and are racing to acquire shares of some of the most prominent players in the field.
Warren Buffett might not share the same enthusiasm as many investors and analysts. After being in the investing world for decades, it’s hard to impress the Oracle of Omaha. Still, the conglomerate he chairs, Berkshire Hathaway (BRK.A -1.17%) (BRK.B -1.27%), owns shares in at least a couple of companies that have made key moves in AI, including Buffett’s longtime favorite business (apart from his own): Apple (AAPL 1.16%).
However, the title of “best AI stock” in Berkshire Hathaway’s portfolio arguably goes to Amazon (AMZN 2.77%). Here’s why.
Amazon versus Apple
Apple recently announced a suite of AI-related features that will be available to its customers, at least those who own some of its latest devices — think the iPhone 15 Pro and above. It will also integrate ChatGPT in some of its devices, including its digital assistant, Siri.
These announcements were a long time coming. Apple was perceived as trailing other tech leaders in the AI race, including Amazon. The e-commerce specialist has been busy. Amazon released such services as Bedrock, which helps companies develop generative AI applications without deep coding knowledge.
Amazon offers a host of AI-related services — including Bedrock — through its cloud computing arm, Amazon Web Services (AWS). The list also includes Amazon Q, a GenAI assistant, Transcribe, which converts text to speech, and Translate, which does what its name suggests.
AI is having an impact on AWS’ revenue growth. In the second quarter, Amazon’s net sales increased by 10% year over year to $148 billion. AWS revenue was up almost 19% year over year to $26.3 billion. Management attributed AWS’ strong performance to three factors, one of which was AI.
Andy Jassy, Amazon’s CEO, says, “Our AI business continues to grow dramatically with a multibillion-dollar revenue run rate despite it being such early days. But we can see in our results and conversations with customers that our unique approach and offerings are resonating with customers.”
Amazon isn’t done. In a move that could put it in a bit of a competition with the high-flying Nvidia, Amazon is designing its own AI chips. The company believes customers will benefit from customized options that are cheaper than what the runaway market leader Nvidia offers. How will this move impact Amazon’s financial results? It’s a bit early to say. However, the company’s entire body of work in AI is much more advanced and comprehensive than Apple’s.
More reasons to buy
Amazon doesn’t feature prominently in Berkshire Hathaway’s portfolio. The conglomerate owned just 10 million shares of Amazon as of the second quarter. That sounds like a lot in a vacuum, but for comparison, it also owned 400 million Apple shares. Still, for investors who want a stock that is owned by Warren Buffett’s Berkshire Hathaway and is a leader in AI, Amazon is a better option than Apple.
Amazon isn’t simply an AI play, however. AWS offers many non-AI-related services. It has been Amazon’s most profitable segment for years, and there is still plenty of room to grow in the cloud computing industry.
Amazon’s e-commerce business isn’t a particularly high-margin one. However, it benefits from a strong moat due to switching costs and the network effect. It also allows the company to generate billions in advertising. Further, Amazon is a leader in video and music streaming. And, it has long sought to make waves in the healthcare industry.
Given Amazon’s track record and its ability to generate consistent earnings and cash flow, investors should expect the company to successfully uncover more meaningful growth avenues beyond the ones already at its disposal, just as it has in the past.
There are many more years of market-beating returns ahead for Amazon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.
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