Berkshire Hathaway can be a great source of inspiration inspiration for individual investors. Warren Buffett, one of the most successful investors in American history, manages the vast majority of the company's $259 billion portfolio. And about 23% of that sum is presently split between two artificial intelligence stocks: 22.1% in Apple(NASDAQ: AAPL) and 0.7% in Amazon(NASDAQ: AMZN).
Wall Street sentiment is generally optimistic for both companies, as evidenced by the substantial upside implied by the median 12-month target prices listed below:
Among the 40 analysts that follow Apple, the median target price is $250 per share. That implies 32% upside from the current share price of $189.
Among the 76 analysts that follow Amazon, the median target price is $268 per share. That implies 50% upside from the current share price of $179.
Here's what investors should know about Apple and Amazon.
Apple: 22.1% of Berkshire Hathaway's portfolio
Apple has long led the world in smartphone sales, but it was also the leader in smartphone shipments in the fourth quarter with 23% market share. Moreover, the company continued to command tremendous pricing power, such that the average iPhone sold for three times more than the average Samsung smartphone.
However, the market share gains were overshadowed by a decline in U.S smartphone sales, such that Apple still delivered a lackluster performance in the December quarter. Revenue increased only 4% to $124 billion. And while GAAP net income jumped 10% to $2.40 per diluted share, stock buybacks rather than strong sales growth was the main driver.
Tariffs represent a potential headwind for many companies, but Apple is in an especially difficult position because it primarily manufacturers iPhones in China, and that product segment accounts for over half of total revenue. President Trump has imposed tariffs totaling 145% on Chinese goods, representing a sevenfold increase versus the average import tax rate under the Biden administration.
Apple can either absorb the costs to maintain demand, in which case its profit margin will suffer. Or the company can pass the costs along to consumers to preserve its profit margin, in which case demand will likely suffer. Meanwhile, the trade war could also cause a backlash among Chinese consumers, meaning demand could drop in another important geographic region.
Beyond tariffs, Apple is navigating another disappointment. The company last October launched artificial intelligence (AI) capabilities for iPhone 16 models. The features, collectively called Apple Intelligence, were supposed to spark a major upgrade cycle. But consumers have so far been unimpressed and the upgrade cycle has yet to materialize.
Wall Street expects Apple's earnings to grow at 10% annually through fiscal 2026, which ends in September 2026. That makes the current valuation of 27 times earnings look expensive, especially when analysts have been reducing their earnings estimates due to uncertainty surrounding U.S. trade policy. Personally, I would avoid the stock today for that reason.
However, Apple currently trades at 26 times forward earnings, a material discount to its two-year average of 30 times forward earnings. Patient investors eager to own shares (and comfortable with the tariff risk) can buy a very small position while the share price is near $189. Buffett evidently has a great deal of confidence in Apple given the stock is Berkshire's largest holding.
Image source: Getty Images.
Amazon: 0.7% of Berkshire Hathaway's portfolio
Amazon not only operates across three major industries, but also has a strong presence in each market. It runs the largest e-commerce marketplace in North America and Western Europe, it is the third-largest ad tech company and largest retail advertiser globally, and Amazon Web Services (AWS) is the largest public cloud in the world as measured in revenue and customers.
Amazon reported strong financial results in the fourth quarter. Total revenue increased 10% to $187 billion on particularly strong sales growth in advertising and cloud services. Meanwhile, GAAP net income increase 86% to $1.86 per diluted share. Investors can expect strong earnings growth in the future, partly because AWS has an advantage in monetizing AI due its status as the largest public cloud.
Additionally, Amazon is using generative AI and robotics across its retail business to boost profitability and improve the user experience. That includes tools to help sellers list their products, inform warehouse inventory allocation, and enable fulfillment center workers to engage robots conversationally. In total, Amazon has either built or is building about 1,000 generative AI applications to drive cost savings.
Importantly, Amazon already has a thriving advertising business due to its ability to engage consumers and source shopper data. Advertising services revenue increased 18% in the fourth quarter. But the company recently introduced Amazon Retail Ad Service, a product that helps other retailers place engaging sponsored content on their websites and mobile apps. That could add momentum to its advertising business.
Wall Street estimates Amazon's earnings will increase 14% this year. That puts the current valuation of 32 times earnings between reasonable and expensive. However, analysts tend to underestimate the company. Amazon beat the consensus estimate by an average of 22% in the last four quarters. I think that pattern will continue as investments in AI and robotics pay off. Patient investors should feel comfortable buying a position around $179 per share.
Should you invest $1,000 in Apple right now?
Before you buy stock in Apple, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $496,779!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $659,306!*
Now, it’s worth notingStock Advisor’s total average return is787% — a market-crushing outperformance compared to152%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
