3 Artificial Intelligence (AI) Stocks Warren Buffett Might Buy If He Were a Tech Investor
Key Points
Warren Buffett has largely avoided investing in tech over the years.
Investors, however, can apply his investing principles to find quality Buffett-type stocks in tech.
The stocks on this list might be in Buffett's portfolio if he were comfortable with investing in artificial intelligence (AI).
- 10 stocks we like better than Nvidia ›
Billionaire Warren Buffett has made his fortune by sticking to what he knows best, and also steering clear of those things he's not so sure of, like tech. While tech stocks haven't been completely foreign to Berkshire Hathaway's portfolio over the years, Buffett has by no means been loading up on tech companies due to their cutting-edge technologies. Apple is one of his most popular holdings, but its days of being a highly innovative and fast-growing tech company are arguably long gone.
But what if Buffett were more of a tech investor, comfortable investing in the sector, and wanted exposure to artificial intelligence (AI)? The three stocks I think would be absolute staples in his portfolio would be Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT), and ASML Holding (NASDAQ: ASML). Here's why these are Buffett-type stocks.
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Nvidia
Buffett loves businesses with a moat, or a strong competitive advantage. Nvidia has plenty of that, with its leading AI chips being a necessity for tech companies investing heavily in AI. While there are many companies selling and making chips these days, it still dominates the market, a true testament to how strong the business is.
Given the ongoing investments in AI, there may be much more room for the business to grow. Buffett values companies with high predictability in their future earnings, and while tech can be volatile at times, Nvidia is arguably one of the safer options in tech today. Over the trailing 12 months, the tech company generated $216 billion in revenue and $120 billion in net income. That's a fantastic profit margin of more than 50%, which Buffett would surely love.
With solid fundamentals and a promising future ahead, Nvidia's stock may still have plenty of room to rise higher. Although in the near term it may face some challenges due to its high valuation, for long-term investors such as Buffett, the stock can still make for a good buy-and-hold investment.
Microsoft
Another big name in tech that Buffett would likely load up on is Microsoft. It's a fairly safe stock in the mold of Apple, but it's been a bit more aggressive on AI. It has launched Copilot and has put AI into its software, paving the way to upsell its customers on new opportunities.
The big advantage Microsoft has is that its Office software is ingrained in many businesses worldwide, giving it a head start over other companies looking to sell AI products and services. While its growth rate is less than 20% and may not seem all that high when compared to other AI companies, it's fairly impressive nonetheless, given how large the business already is today; Microsoft has reported revenue totaling more than $305 billion over its past four quarters, and its profit margin has been around 40%.
Microsoft is a stock that would check off a lot of boxes for Buffett. In the past, Buffett has said that his close relationship with co-founder Bill Gates (and thus the potential appearance of insider access) prevented him from investing in the business. If not for that, it might already have been in Berkshire's portfolio alongside Apple.
ASML Holding
Perhaps the least obvious name on this list is ASML Holding. But this is another business with an impressive moat that Buffett would covet in a tech stock. The company has a near-monopoly on extreme ultraviolet lithography machines used to make advanced chips.
Like Microsoft, the Dutch company has been growing its revenue at a decent rate, but it has been fairly modest. Its sales rose by 16% last year, but in just three years the top line has climbed by 54%. ASML's profit margin is technically the lowest one on this list, but at around 30%, it's still incredibly impressive.
The pivotal role that ASML plays in chip manufacturing makes it a virtual no-brainer investment for anyone who wants exposure to AI, because as demand for chips increases, inevitably, so will demand for ASML's services.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Apple, Berkshire Hathaway, Microsoft, and Nvidia and is short shares of Apple. The Motley Fool has a disclosure policy.
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