Berkshire Hathaway ($BRK.A) ($BRK.B) may be missing out on tailwinds in artificial intelligence (AI), with the holdings company trimming its position in its main AI-focused investment. While I appreciate that there is value beyond Berkshire’s equity portfolio, its holdings don’t particularly excite me. That’s partially due to its focus on traditional American heavyweights and its rather narrow tech focus. It may benefit from rotation out of tech in the short term, but I’m staying neutral on Berkshire Hathaway, as it is missing out on AI tailwinds.
Berkshire Hathaway Trims Apple Holdings
Let’s start with the news. Berkshire Hathaway, a multinational conglomerate holding company led by Warren Buffett and known for its quality-oriented investments and long-term growth strategy, recently made headlines as it revealed its growing cash reserves, indicating a more bearish position on global markets.
Another major development was Berkshire’s move to continue cutting its stake in Apple (AAPL), arguably its only major holding with significant AI exposure. According to Berkshire’s second-quarter earnings report, the company cut its holdings in Apple by nearly 50%, dropping from 790 million shares to 400 million shares.
In monetary terms, this means that the value of these holdings decreased from $135.4 billion at the end of the first quarter to $84.2 billion at the end of the second quarter. It’s now worth around 28.7% of the total equity portfolio.
Berkshire Hathaway’s AI Investments
If this doesn’t sound significant, it’s worth considering that Apple had previously represented around 50% of Berkshire’s equity portfolio. The sale appears to be driven by several factors, including tax management, valuation concerns, and a desire to increase liquidity. The sale also coincided with the appreciation of Apple shares and other members of the so-called “Magnificent Seven.”
Apple may not be as prominent a beneficiary of the AI revolution as companies like Nvidia (NVDA) and even Super Micro Computer (SMCI). Nevertheless, it is actively developing its Apple Intelligence software in collaboration with OpenAI. This initiative aims to enhance products such as Siri and other applications, integrating advanced AI capabilities to improve user experience and functionality.
Other AI-related holdings include BYD (BYDDF), Amazon (AMZN), and Snowflake (SNOW) (until yesterday, when news came out that Buffett sold all of his SNOW shares). However, all of these companies represented less than 0.6% of invested assets.
Berkshire’s Exit Is Potentially Premature
Turning to strategy, Berkshire’s equity portfolio arguably looks more balanced after the holdings company trimmed its Apple stake. However, from the outside, it does seem like a portfolio with fairly narrow exposure to what appears to be the biggest investment trend of the next decade — namely AI.
Meanwhile, other major funds, including Norway’s sovereign wealth fund, have not backed away from AI despite rising valuations. On August 14, 2024, Norway’s Government Pension Fund Global reported a first-half profit of $138 billion, largely driven by its strategic investments in technology and AI stocks.
Despite the fund marginally trimming its positions in Meta Platforms (META), Novo Nordisk (NVO), and ASML (ASML), the fund has remained focused on AI investments.
Of course, it’s not up to me to say Warren Buffett’s portfolio could contain more AI-focused investments. However, I’d suggest it’s not the portfolio of choice for investors like myself, keen to benefit from supportive trends in AI.
Does Berkshire Hathaway Stock Present Good Value?
Regarding value, Berkshire Hathaway’s unique structure as a conglomerate with a diverse range of wholly-owned businesses and significant equity investments makes it different from typical companies. As such, metrics like the price-to-earnings ratio may not fully capture the intrinsic value of its operations, which include insurance, railroads, utilities, and manufacturing, among others.
However, for context, Berkshire Hathaway is trading at around 20x forward earnings, putting it at a marginal discount to the S&P 500 (SPX). Its EV-to-EBITDA ratio of 7.84x also puts it at a 31.2% discount to the Financials sector. These are positive metrics, but as noted, arguably ones that don’t fully capture its intrinsic value.
Is Berkshire Hathaway Stock a Buy, According to Analysts?
On TipRanks, BRK.B comes in as a Moderate Buy based on one Buy, one Hold, and zero Sell ratings assigned by analysts in the past three months. The average Berkshire Hathaway stock price target is $457.50, implying 4% upside potential.
See more Berkshire Hathaway analyst ratings
The Bottom Line on Berkshire Hathaway
Berkshire Hathaway has been one of the most successful holding companies over the last five decades. However, it may not be well-positioned to benefit from emerging trends in AI. While I would feel more comfortable investing in the company now that its stake in Apple has become less dominant, this shift also means its exposure to AI is even lower than before. As a result, I believe Berkshire may miss out on potential opportunities in the rapidly evolving AI landscape.
