23% of Warren Buffett's Portfolio Is Invested in This 1 AI Stock

Warren Buffett and his crew at Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) have one of the best investment track records of all time. Few investors have been able to match Buffett's success over Berkshire's long history.

However, Berkshire hasn't achieved this success by investing in flashy tech stocks or following a trend. Instead, he's purchased great companies in established industries at discounted prices and held them for a long time. This value-investing style may not be as popular as it once was, but it has worked out well for Berkshire Hathaway shareholders.

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Still, some may consider Berkshire's largest holding to be an artificial intelligence (AI) stock, which is contrary to what he normally invests in. With nearly a quarter of his portfolio in this stock, does Buffett know something that we don't?

Apple is late to the AI party

Berkshire Hathaway's largest holding is Apple (NASDAQ: AAPL), which makes up around 23% of its portfolio. That's a huge concentration in a single stock, but this has worked out well for Buffett in the past. At the end of 2023, Apple made up around 50% of Berkshire Hathaway's investment portfolio until Buffett started selling shares.

Apple is the largest company in the world and one of the most popular consumer electronics brands. While it has multiple products, everything centers around the ecosystem that Apple has built around the iPhone. Most rival phones already have several key AI features integrated into them, while Apple Intelligence (Apple's take on generative AI integration) is still working on a full rollout.

The company is notoriously late to any cutting-edge technology because it wants to make sure that its products are perfect before they are rolled out. However, Apple is well behind the competition here.

While some may think of Apple an AI company because of its AI tools, I don't really consider that to be the case, as it's more like an AI integrator. If Apple was launching new AI features like those on Android phones, I'd change my stance. But right now, AI isn't really Apple's forte.

However, I don't think Buffett cares. He doesn't own Apple's stock for its AI upside. Instead, he owns it because he bought the stock for a cheap price in 2016 and has held on due to its devoted user base. However, Apple isn't the stock or company it once was, so investors need to consider selling shares like Buffett did.

The stock is far more expensive than it once was

In 2016, Apple was trading for a dirt-cheap 12 times earnings. Now, it is worth three times that much.

AAPL PE Ratio data by YCharts

A large part of Apple's gains has come from multiple expansion, which occurs when investors are willing to pay more for a stock's earnings. However, compared to other tech stocks, Apple's revenue and earnings per share (EPS) growth over that same time frame has not been impressive.

AAPL Revenue (TTM) data by YCharts

Apple's earnings and revenue have plateaued since the COVID-era boost was over, and Wall Street only projects Apple's revenue to grow by 4.6% in fiscal 2025 and 8% in fiscal 2026. The higher growth rate in fiscal 2026 likely includes integrating Apple Intelligence as a subscription service, which would drive more revenue for Apple.

However, with Apple Intelligence yet to be fully launched, it's undoubtedly losing a few AI-hungry customers to the Android ecosystem, and I'd consider that growth rate to be an optimistic projection.

With Apple stock looking very expensive and the company falling behind in the AI arms race, it's safe to say that it's trading at its current levels due to its brand value and past history. This isn't a great combination, and other big tech stocks are growing far faster and trade for a much cheaper price tag.

As a result, I think investors should consider moving their Apple investments into other companies with potential for greater returns than if you just owned Apple stock (assuming Apple doesn't launch a game-changing product, which it hasn't done in years).

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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.