This advantaged company offers a low-risk way to gain exposure to AI.
Artificial intelligence (AI) continues to be a hot topic for investors. It is seen as a potentially groundbreaking technology, so it's no surprise that investors want to capitalize on this trend in their portfolios.
This is true even of the great Warren Buffett, who has historically shied away from tech investments: his giant conglomerate Berkshire Hathaway has 29% of its publicly traded stock portfolio invested in one giant AI stock.
Keep reading to find out what this company is all about and whether it's a wise investment to make right now.
Apple's Advantage
One of Warren Buffett's most successful investments is a recent one. I'm talking about his incredibly profitable bet on Apple (AAPL, 0.15%). The iPhone maker's stock has skyrocketed in recent years.
The Oracle of Omaha decided to significantly reduce its holdings in the three months ending in June, though Apple remains the conglomerate's largest holding in its portfolio.
Nvidia has gotten all the attention as the poster child for the AI boom, but investors shouldn't forget about the already dominant tech giants that have been at the forefront of digital trends for years, including Apple.
As per usual, the Cupertino-based company was late in announcing its AI strategy, but it certainly made quite a splash.
Called Apple Intelligence, the overall aim of the technology is to make the company's various hardware devices more useful to consumers. Notable features include an upgraded Siri assistant, enhanced writing tools, image generation capabilities, etc. New products with the latest software will have these AI features enabled and integrated with ChatGPT.
Investors may be looking for companies that can introduce entirely new AI-related products and services, but I think that's the wrong way to look at it. Rather, it's more likely that companies that are already leading their respective industries will use AI to strengthen their current competitive position.
This is where Apple has the advantage: with over 2.2 billion active devices worldwide, it has unparalleled distribution capabilities to release AI features and have them quickly adopted. Given that users are locked into Apple's ecosystem, it is confident that this new initiative will be a business success.
But at the end of the day, I think the company's AI push has one main goal: to sell more iPhones. Apple is still a smartphone company, and 46% of its revenue in the third quarter of 2024 (ending June 29) came from iPhone sales. Perhaps Apple Intelligence will encourage more people to switch to the latest model.
“We're very excited about Apple Intelligence and believe the level of value it delivers to users makes it another compelling reason to upgrade,” CEO Tim Cook said during the company's third-quarter 2024 earnings call.
Should you buy Apple stock?
Apple is one obvious way to bet on the AI trend — it has a competitive advantage and is a very profitable company — but frankly, I don't think its shares are a smart buy right now.
At the time of writing, the company's stock is trading at a price-to-earnings ratio of 34, which is significantly higher than the averages over the past five and ten years. Paying such a high price would only make sense if Apple's growth were to accelerate over the next few years, which is unlikely as the industry is currently very mature.
Average investors should not blindly follow the actions of great figures, even if they are Warren Buffett. The fact that this investment legend has reduced his holdings may be a clear sign that he no longer sees Apple as such an attractive investment opportunity. I believe this is a valid point of view, and investors should reconsider buying the stock immediately.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Apple, Berkshire Hathaway, and Nvidia. The Motley Fool has a disclosure policy.
