How Warren Buffett could be a huge winner from the AI revolution

Warren Buffett’s investment company, Berkshire Hathaway (NYSE: BRK.B), doesn’t have a lot of exposure to AI stocks. Currently, most of the portfolio is invested in ‘old economy’ stocks such as banks, insurers, oil companies, and consumer goods businesses.

This doesn’t mean that Berkshire won’t benefit from artificial intelligence, however. Looking at the portfolio, it could actually be a huge beneficiary of the AI revolution.

AI is likely to benefit the insurance sector

One industry that’s almost certainly likely to benefit from AI in the years ahead is insurance. In this industry, the technology should:

• Dramatically reduce customer service costs (AI agents will most likely replace a lot of human employees).
• Significantly enhance underwriting and pricing models.
• Accelerate claims management.
• Enhance fraud detection.

Overall, insurers should be able to become far more efficient and streamlined with AI. This should increase their profitability levels.

Insurance is Buffett’s favourite sector

Now, Buffett has always been a big fan of insurance companies. He likes them because they tend to generate a lot of cash and cash flows tend to be pretty stable as customers pay premiums on a regular basis.

“The insurance business is particularly enticing.”
Warren Buffett

Today, Berkshire Hathaway owns a number of insurance businesses outright. Examples here include GEICO, General Re, and Alleghany.

It also has a decent-sized position in insurance firm Chubb in its equity portfolio. Here, the investment company owns about 9% of the business.

Note that its share price is starting to motor higher as investors realise the possibilities of AI. Over the last year, it has climbed about 30%.

So, Berkshire Hathaway could really benefit if AI streamlines the insurance industry. Ultimately, insurance is its core engine.

Banks should benefit too

It’s worth pointing out that Berkshire Hathaway has a number of other ways to win from AI. Another industry that could benefit from the technology is banking.

Here, AI could enhance:

• Customer onboarding
• Customer service
• Lending
• AML investigations
• Regulatory scanning

One bank stock Berkshire owns that’s already seeing the benefits of AI is Bank of America. It has an AI customer service assistant called Erica that now serves nearly 50m users and resolves 98% of customer inquiries without human intervention.

Overall, Berkshire has many ways to win from AI. While it doesn’t own many pureplay AI stocks, it’s well positioned to benefit from the adoption of the technology.

Worth a closer look?

So, is Berkshire Hathaway worth considering as an investment today? I think it is.

There’s a chance that it could underperform the broader market in the short term. Because its stock portfolio looks very different to the market.

However, in the long run, it should do well. Because it owns a lot of good businesses and many of these businesses should benefit from AI.

Meanwhile, it could add value in a portfolio as a hedge. For example, if tech stocks come crashing down, it may offer some outperformance.

Should you invest £5,000 in Berkshire Hathaway right now?

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Edward Sheldon does not hold any positions in the companies mentioned.