The AI tidal wave that started with a ripple in late 2022, courtesy of OpenAI's ChatGPT, since engulfed the tech and business landscape of 2023.
Everywhere investors turned, AI dominated the narrative. It was prominent in earnings reports and even more so in earnings calls with giants such as $Alphabet-A (GOOGL.US)$ and $Microsoft (MSFT.US)$ mentioning the buzzword a combined 113 times during their most recent earnings calls.
But as investors scrambled in the second quarter to catch the wave, the Oracle of Omaha, Warren Buffett, seems to have been already surfing in it.
What Happened: Buffett's $Berkshire Hathaway-B (BRK.B.US)$$Berkshire Hathaway-A (BRK.A.US)$ $364.7 billion portfolio is weighted heavily toward companies involved in AI — by some 46.7%.
The spread includes $Apple (AAPL.US)$ at 44.9%, $HP Inc (HPQ.US)$ at 1.1%, $Amazon (AMZN.US)$ at 0.4%, and $Snowflake (SNOW.US)$ at 0.3%.
Apple, initially silent amidst the AI buzz, announced its entry with the Vision Pro augmented reality headset due next year. CEO Tim Cook said on its earnings call that Apple has been diving into AI research, echoing the capabilities of models such as ChatGPT.
But Buffett's AI investments aren't just about jumping on a bandwagon — he's long been known for spotting value amidst hype, and he remained discerningly cautious about AI. Reflecting upon his sentiment at Berkshire's annual investor conference in May, he said, "With AI, you can change everything in the world, except how men think of the AI, and that is a big step to take."
Buffett's duality — between AI's boundless potential and its overarching fears, especially concerning market valuations — is unmistakable. His balanced stance, echoing both AI's promise and the inherent risks, is a lesson in itself.
With AI-centric companies influencing 2023's market dynamics, there's a clear shift toward a top-heavy advance, particularly with dominant stocks impacting key indexes like the S&P 500 and Nasdaq 100.
It brings up the question: What's next for the market as the AI momentum shows signs of plateauing?
History offers some solace. Even during tech's extreme dominance in the late 1990s, which eventually led to the dot-com crash, there were periods where the market continued to rally despite clear signs of disparity.
A lopsided market does not necessarily spell doom; usually, fundamental shifts are what turn the tide. Buffett's diversified approach, while keeping a strong foothold in AI-empowered companies, seems to be a hedged bet against any fundamental upheavals.