Berkshire sells Apple stock and buys this other magnificent artificial intelligence (AI) stock instead

• Over the past two years, Berkshire has reduced its position in Apple stock by more than 70%.

• For years, Berkshire has been hoarding cash and collecting interest on T-bills.

• Last quarter, Berkshire used some of its excess cash and acquired a stake in Alphabet.

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Over the past three years, artificial intelligence (AI) has become such an influential topic that the broader market seems to ebb and flow based on this singular narrative. The S&P 500 and Nasdaq Composite Both indices are nearing record highs, with megacap tech stocks being some of the biggest contributors to the market’s continued rally.

While nearly every major hedge fund on Wall Street can’t seem to get enough of AI, Berkshire HathawayWarren Buffett — who just stepped down as CEO — stuck primarily to his contrarian methods. Throughout the AI ​​revolution, Berkshire has been a net seller of stocks — accumulating cash on its balance sheet and collecting passive income through T-bills.

Last quarter, Berkshire finally used some of its excess capital and made a significant addition to its portfolio. Let’s dig into some of the fund’s moves over the past few years and try to understand what drove these decisions. From there, we’ll take a look at the valuation and assess whether now is a good opportunity to follow in Buffett’s footsteps.

Berkshire Hathaway has long been a fan of consumer businesses and financial services. For decades, many of the firm’s largest holdings have included insurance companies and banks, as well as a mix of consumer staples and discretionary brands.

In 2016, Buffett made headlines after being acquired by Berkshire Apple (NASDAQ:AAPL) stock. Many investors saw this as a rare example of Buffett investing in the technology sector. However, given Apple’s brand, consumer loyalty, robust hardware ecosystem, and steady cash flow generation, the company actually checks off many of Buffett’s investment criteria.

A combination of significant price appreciation and subsequent buying over the past decade ultimately made Apple Berkshire’s largest holding. However, throughout the AI ​​revolution, Buffett has reduced exposure to the iPhone maker.

Data source: 13f.info

As of the end of 2023, Berkshire has reduced its exposure to Apple by about 73%. Many Wall Street pundits have criticized Apple for being late to the AI ​​market. While I personally agree, I don’t think this necessarily played a big role in Buffett’s decision to sell the stock.

To me, the rationale behind these sales was more macro oriented. Since October 2023, both the S&P 500 and Apple are up about 60% — an abnormally high return in a fairly short period. Buffett has always exercised prudent judgment. I think taking advantage of a frothy market and rolling capital into more passive vehicles seemed like a better deal in Buffett’s eyes.

For much of the AI ​​revolution, companies like Nvidia and Palantir Technologies were the main attractions. When it comes to legacy internet companies, both Amazon and Microsoft they have also become very important in the wider discussion of AI.

However, one company that has been relatively quiet in recent years is Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). For a while, the rise of large language models (LLMs) like ChatGPT was seen as a blow to traditional search engines – namely, Google.

But in recent years, Alphabet has gone quietly and built its AI roadmap. Now the billionaires are finally catching on. During the third quarter, high-profile investors including Stanley Druckenmiller, Israel Englander, Ken Griffin, Philippe Laffont, and now Warren Buffett all jumped into Alphabet stock.

Alphabet currently boasts a forward price-to-earnings (P/E) multiple of 29. While the time to buy stocks at bargain prices may have passed, there are still plenty of upsides.

Today, Alphabet has integrated its own LLM, Gemini, into core aspects of its business — from a revamped Google search landing page to the company’s Android consumer electronics devices.

In addition, Alphabet has invested heavily in its own hardware in the form of custom application-specific integrated circuits (ASICs) called Tensor Processing Units (TPUs) — integrating this technology into its budding cloud computing platform. Most recently, Alphabet announced a $4.7 billion acquisition of Intersect — a provider of clean energy sources for data centers.

By vertically integrating all aspects of the AI ​​value chain across its ecosystem, Alphabet is positioning itself to become a sustainable leader of the next technology supercycle. Against this backdrop, I believe Alphabet is poised for significant valuation expansion over the next few years, and I see the company as a compelling buy-and-hold opportunity for patient investors with a long-term time horizon — much like Berkshire Hathaway.

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Adam Spatacco has positions in Alphabet, Amazon, Apple, Microsoft, Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, Nvidia and Palantir Technologies. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

Berkshire Sells Apple Stock, Buys Another Magnificent Artificial Intelligence (AI) Stock was originally published by The Motley Fool