When it comes to portfolio management, investors will often hear hedge fund managers and Wall Street personalities talk about the importance of a diversified portfolio.
For nearly six decades, Warren Buffett helped transform Berkshire Hathaway into an investment powerhouse thanks in large part to his ability to identify quality companies trading for reasonable prices across a variety of different industries.
One industry that Buffett has often avoided, however, is technology. While Berkshire has owned (and still owns) a number of technology or tech-adjacent businesses, it's not a sector that Buffett prioritizes.
For these reasons, you might be surprised to learn that the "Oracle of Omaha" has any exposure whatsoever to an emerging pocket of the artificial intelligence (AI) realm called quantum computing.
Let's explore three quantum computing stocks that Buffett is invested in. From there, I'll detail why these positions are important and which one I think is the best of the bunch.
What quantum computing stocks are in Buffett's portfolio?
Berkshire Hathaway only directly owns one quantum computing stock through its position in Amazon (AMZN 0.87%). However, one of Berkshire's subsidiaries is an investment management firm called New England Asset Management (NEAM). NEAM can be thought of as Buffett's "secret" portfolio -- as positions owned by NEAM are indirectly affiliated with Buffett, too.
According to its most recent 13F filing, NEAM holds Microsoft and Alphabet -- both of which are designing their own quantum chips called Majorana and Willow.
As I alluded to above, technology stocks are not high on Buffett's priority list. Berkshire's position in Amazon is worth roughly $2 billion at current market prices. This equates to less than 1% of the portfolio's total value. In addition, NEAM's combined positions in Microsoft and Alphabet also make up less than 1% of its holdings.
NASDAQ: AMZN
Key Data Points
Which of these "Magnificent Seven" stocks is the best of the bunch?
Among the three "Magnificent Seven" stocks above, Amazon is my top pick. While Amazon's Ocelot chip will rival those developed by its peers, I see several additional reasons to own the stock.
According to data from CloudZero, the company's cloud platform -- Amazon Web Services (AWS) -- held 29% market share at the end of the first quarter. This is the highest in the industry, placing Amazon well ahead of Microsoft Azure and Google Cloud Platform.
One way that Amazon has helped supercharge growth across the AWS business is through its strategic partnership with Anthropic. Anthropic's generative AI models have become tightly integrated throughout the AWS ecosystem, and have helped bring in a new wave of revenue acceleration and profit margin expansion for the business.
To be fair, Microsoft Azure has made serious ground on AWS over the last couple of years thanks to its own partnership with ChatGPT maker OpenAI.
However, OpenAI recently signed a major cloud computing deal with Google. In addition, OpenAI has also been rumored to be strengthening its ties with Oracle given both companies' involvement in the $500 billion AI infrastructure initiative, Project Stargate. To me, these deals signal that OpenAI may be distancing itself from Microsoft -- which calls into question how much value it will continue adding to Azure in the long run.
Beyond the cloud, Amazon has other opportunities to integrate AI into its ecosystem. An important use case could be to complement its warehouse and logistics operations through AI robotics.
Alphabet's dominance in internet search could be threatened by the rise of large language models over time. Meanwhile, the company faces rising competition -- primarily from Tesla -- in the autonomous vehicle space.
Although Microsoft and Alphabet also have diverse ecosystems, I think Amazon's overall business is in the least vulnerable position.
Image source: The Motley Fool.
Is Amazon stock a buy right now?
One potential drawback regarding an investment in Amazon right now revolves around valuation. With a forward price-to-earnings (P/E) ratio of 36, Amazon trades at a premium compared to other cloud hyperscalers.
AMZN PE Ratio (Forward) data by YCharts
As the trends in the chart above illustrate, Amazon stock has rebounded sharply after a precipitous sell-off earlier this year. Right now, I think Amazon stock might have some momentum behind it due to a more bullish macro viewpoint that cloud infrastructure is one of the next pillars supporting the broader AI narrative.
As I explored above, quantum computing is only one pocket of the AI realm that Amazon seeks to disrupt. The company has made massive strides at the intersection of cloud computing and AI, and appears to have more lucrative growth prospects to support its e-commerce business through ongoing robotics developments.
While the stock has gotten pricey, I still see Amazon as a rock-solid opportunity for investors with a long-term time horizon.
