Artificial intelligence (AI) is still on top of investors' minds. With the belief that this could be a game-changing technology, it makes sense why people want to gain exposure to this trend in their portfolios.
That's also true for the great Warren Buffett, who has historically shied away from making tech investments. Berkshire Hathaway, the massive conglomerate that he runs, has 29% of its public equities portfolio in one monster AI stock.
Continue reading to find out what company this is and if it makes for a smart investment right now.
Apple's advantage
One of Warren Buffett's most successful investments is a recent one. I'm talking about his incredibly lucrative bet on Apple (NASDAQ: AAPL). The iPhone maker's shares have skyrocketed over the past few years.
The Oracle of Omaha decided to trim his position meaningfully in the three-month period that ended in June. Nonetheless, Apple is still the single-largest position in the conglomerate's portfolio.
Nvidia gets all the attention, as it's the main poster child for the AI boom. But investors shouldn't forget about the already dominant tech titans that have long been at the forefront of digital trends. Apple is one of these businesses.
In typical fashion, the Cupertino-based company was late to the game in terms of revealing its AI strategy. But it certainly made a splash.
Called Apple Intelligence, the overarching objective is simply to make the company's various hardware devices more useful to consumers. Notable features are an upgraded Siri assistant, enhanced writing tools, and the ability to generate images. Newer products with the latest software will have these AI features enabled, which will be integrated with ChatGPT.
Investors might be looking for businesses that can introduce completely new AI-related products and services. But I think this is the wrong way to view things. Instead, companies that already lead their respective industries will likely utilize AI to bolster their current competitive positions.
Here's where Apple has an advantage. It has over 2.2 billion active devices across the globe, which creates unmatched distribution capabilities to release its AI features with immediate adoption. Given that users are locked into the Apple ecosystem, I'm confident the business will be successful with this new initiative.
At the end of the day, though, I still see one main goal with the company's AI push: to sell more iPhones. Apple remains a smartphone enterprise, as 46% of its third-quarter 2024 (ended June 29) revenue was derived from the sale of iPhones. Perhaps Apple Intelligence will encourage more people to switch to the latest models.
"I would just say that with Apple Intelligence, we are very excited and about the level of value that we're going to provide to users, we believe that that presents another reason for a compelling upgrade," CEO Tim Cook said on the Q3 2024 earnings call.
Should you buy Apple stock?
Apple is one obvious way to bet on the AI trend. It's a competitively advantaged and extremely profitable enterprise. But to be clear, I don't think the stock is a smart buying opportunity today.
As of this writing, shares trade at a price-to-earnings ratio of 34. That's a substantial premium to the trailing five- and 10-year averages. Paying such a steep price only makes sense if Apple's growth is set to accelerate in the years ahead. But given that this is a very mature business these days, that's not likely.
The average investor shouldn't blindly follow the actions of the greats, even Warren Buffett. The fact that the investing legend trimmed his position could be a clear sign that he doesn't believe Apple is as compelling of an opportunity anymore. I believe this is the right point of view to have, which means investors should reconsider buying the stock right now.
Should you invest $1,000 in Apple right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.
29% of Warren Buffett's Portfolio Is Invested in This 1 Monster AI Stock was originally published by The Motley Fool