<div id="readability-page-1"><p>For decades, Warren Buffett helped build <strong>Berkshire Hathaway</strong> into a financial behemoth primarily through investments across consumer goods and insurance. It's quite rare that the Oracle of Omaha dabbles with stocks in the technology sector.</p> <p>Ironically enough, though, the largest position in Berkshire's portfolio is <strong>Apple</strong>. However, Berkshire has actually been trimming its stake in Apple considerably over the last year.</p> <p>In my eyes, Apple is not the artificial intelligence (AI) stock to buy in Berkshire's portfolio. Rather, I'll outline why <strong>Amazon</strong> <span>(AMZN<span> -0.10%</span>)</span> is my top Buffett AI play and make a case for why investors should buy this stock hand over fist right now.</p>  <h2>Amazon Web Services is a sleeping giant</h2> <p>Amazon reports its operating results across the following segments: online stores, physical stores, third-party seller services, advertising, subscriptions, and Amazon Web Services (AWS).</p> <p>The largest contributors to Amazon's revenue are, by far, online stores and third-party seller services (which is, effectively, an extension of the e-commerce marketplace). With that said, I see the AWS cloud infrastructure business as the real crown jewel.</p> <p>AWS accounts for over $100 billion of revenue annually for Amazon -- and sales are accelerating. What's even better is that AWS accounts for the majority of Amazon's operating income, providing the company with a fast-growing cash cow poised to dominate the ongoing AI revolution. Below, I'll explore what's driving AWS right now and detail why Amazon is sitting in a lucrative position in the AI realm.</p> <div><p><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MDgxMTYvYnVmZmV0dDgtdG1mLTEuanBnJnc9NzAw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="466" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MDgxMTYvYnVmZmV0dDgtdG1mLTEuanBnJnc9NzAw"/></p><p>Image source: The Motley Fool.</p> </div> <h2>Amazon is doubling down on AI infrastructure</h2> <p>A couple of years ago, you may recall that <strong>Microsoft</strong> <span>(MSFT<span> 0.07%</span>)</span> committed to a $10 billion investment in OpenAI -- the maker of ChatGPT. For quite a while, this partnership set the tone for the AI narrative -- and in my opinion, I still kind of does. While others in the big tech arena have been working swiftly on their own AI roadmaps, I feel OpenAI continues to garner an outsized amount of attention relative to its peers. But in a way, this is actually a good thing for Amazon.</p> <p>Following Microsoft's investment in OpenAI, Amazon poured $4 billion into a generative AI start-up called Anthropic. As part of the deal, Anthropic is training its models on AWS infrastructure and using Amazon's custom Trainium and Inferentia chipware.</p> <p>In the table below, I've summarized the revenue growth and operating margin in AWS since Amazon initially invested in Anthropic in September 2023.</p> <div><table> <tbody> <tr> <th scope="col">Category</th> <th scope="col">Q3 2023</th> <th scope="col">Q4 2023</th> <th scope="col">Q1 2024</th> <th scope="col">Q2 2024</th> <th scope="col">Q3 2024</th> <th scope="col">Q4 2024</th> </tr> <tr> <td>AWS Revenue % Growth Year over Year</td> <td>12%</td> <td>13%</td> <td>17%</td> <td>19%</td> <td>19%</td> <td>19%</td> </tr> <tr> <td>Operating Margin %</td> <td>30%</td> <td>30%</td> <td>38%</td> <td>35%</td> <td>38%</td> <td>37%</td> </tr> </tbody> </table></div> <p>Data source: Investor Relations.</p> <p>It's clear that since Anthropic became embedded into the AWS ecosystem, Amazon has witnessed significant acceleration across sales and profits in its cloud business. Given the positive tailwinds Anthropic is fueling for Amazon, it's not surprising that the company invested an additional $4 billion into the start-up late last year.</p> <p>During the company's fourth-quarter earnings call earlier this month, investors learned that Amazon is budgeting for more than $100 billion of AI infrastructure spend this year. Given the importance AWS is playing in Amazon's AI ambitions, it's not surprising that management indicated the majority of this infrastructure spend will be going toward cloud applications.</p> <p>While the operating results above are impressive, I think Amazon's momentum is just beginning.</p> <h2>Amazon's valuation is a prime deal you just can't resist</h2> <p>The table below illustrates Amazon's trailing 12-month operating margin trends over the last five years. Following a tough period in 2022 -- which was underscored by high inflation and rising interest rates -- Amazon has managed to turn the page and generate more attractive unit economics at scale.</p> <p><img src="https://imageproxy.pbkrs.com/https://media.ycharts.com/charts/8f902f4f468e0424a278132df260ac60.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="720" height="441" original-src="https://imageproxy.pbkrs.com/https://media.ycharts.com/charts/8f902f4f468e0424a278132df260ac60.png"/></p> <p>AMZN Operating Margin (TTM) data by YCharts.</p> <p>What's even better is that Amazon's operating profits aren't just improving -- they are accelerating, as indicated by the steep slope in the line above.</p> <p>One additional point I'd like to make is that while the operating margin for AWS hovers in the mid-30 percentages, the overall operating margin for Amazon's entire business sits closer to 11%. To me, this underscores just how important and influential AWS is for Amazon's overall picture -- hence, the majority of its AI investments are dedicated to this particular unit.</p> <p>As of this writing (Feb. 18), Amazon stock trades at a price to free cash flow (P/FCF) multiple of 73 -- quite the discount to the company's 10-year average P/FCF of 80, and even more so to its five-year average P/FCF ratio of 104.</p> <p>Considering AWS is entering a new phase of growth featuring the AI megatrend and its importance in Amazon's overall ecosystem, coupled with the stock's historically cheap valuation, I see Amazon as a no-brainer opportunity to buy hand over fist right now.</p>                                                                            </div>

AMZN

<p>Warren Buffett's Berkshire Hathaway has been trimming its stake in Apple, leading to a recommendation to invest in Amazon as the top AI stock. Amazon Web Services (AWS) is highlighted as a key growth driver, generating over $100 billion in annual revenue and significant operating income. Amazon's recent investments in AI, including a $4 billion stake in Anthropic, are expected to enhance AWS's performance. With improving operating margins and a favorable valuation, Amazon is positioned well for the AI revolution, making it a compelling investment choice.</p>

- The article discusses Warren Buffett's investment strategy, highlighting Berkshire Hathaway's significant stake in Apple and the author's preference for Amazon as a better AI investment.  
- It emphasizes Amazon Web Services (AWS) as a key revenue driver, with substantial growth and profitability, particularly following investments in AI infrastructure.  
- The author argues that Amazon's current stock valuation presents a compelling buying opportunity, especially as AWS plays a crucial role in the company's AI ambitions.

Motley Fool

If I Could Only Buy 1 Warren Buffett Artificial Intelligence (AI) Stock, This Would Be It (Hint: It's Not Apple)