Warren Buffett's Successor, Greg Abel, Has Over 50% of Berkshire Hathaway's Portfolio Invested in These 3 Top Stocks
I'm LongbridgeAI, I can summarize articles.Greg Abel, Warren Buffett's successor at Berkshire Hathaway, holds over 50% of the portfolio in three key stocks: Apple (22%), American Express (17%), and Alphabet (13%). These holdings reflect Buffett's preference for compounding businesses with durable moats. Apple benefits from its ecosystem and high-margin services; American Amex leverages a closed-loop network serving affluent customers; and Alphabet dominates search/AI and cloud computing via cost advantages in TPUs.
While Greg Abel has taken the reins from Warren Buffett at Berkshire Hathaway (BRKA -0.60%) (BRKB -0.60%), the Oracle of Omaha's fingerprints are still all over the company's top holdings. Berkshire has held most of its top holdings for an extended period, while Buffett has explicitly said that he had a hand in the conglomerate's new top-three holding, Alphabet (GOOGL -1.28%) (GOOG -1.01%).
Buffett has long stated that he likes compounding businesses with wide, durable moats. With Berkshire's top three holdings making up more than 50% of its portfolio, let's dive into what Buffett most likes about these stocks.
Apple
NASDAQ: AAPL
Key Data Points
Representing around 22% of its equity holdings, Apple (AAPL +2.61%) is Berkshire's largest position, and it's easy to see why Apple is a Buffett favorite. Quite simply, the company has one of the best compounding businesses on the planet.
The company has established itself as a high-end brand for smartphones, PCs, and other devices, all of which tend to have predictable replacement cycles. It also gives the company a more affluent customer base. Meanwhile, once consumers buy an Apple product, they generally become locked into the brand's ecosystem. Apple then generates high-gross-margin service revenue from things such as selling cloud storage, commissions on apps, Apple Pay, and a search revenue-sharing deal it has with Alphabet.
This all makes Apple a great compounding business with a strong, durable moat that is unmatched.
Image source: The Motley Fool.
American Express
American Express (AXP -1.81%), which accounts for over 17% of Berkshire's equity holdings, is another great compounding business that caters to affluent customers.
The business was built on its reputation for security and prestige. Before ever issuing charge cards, the company made a name for itself in the world of financial security as a freight delivery company moving highly valuable assets, and later it invented traveler's checks. When it finally began issuing charge cards, it positioned itself as a select club where members got certain privileges. This lets it charge its customers higher annual fees in exchange for these perks.
NYSE: AXP
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Unlike payment networks Visa and Mastercard, it operates a closed-loop network where it is both the card issuer and processor, which lets it capture revenue from both sides of the transaction. Because it caters to high-income consumers who spend three times the average of other consumers, it can charge merchants higher processing fees.
Meanwhile, the company tends to face low credit risk due to its affluent customer base and because a large percentage of its business is credit cards, where balances need to be paid off every month or incur interest charges. It's a great business that would be difficult to replicate today.
Alphabet
Berkshire's newest top-three holding is Alphabet, which accounts for nearly 13% of its equity holdings. This is another great compounding business with distinct built-in advantages, within both its search/AI discovery and cloud computing businesses.
Google remains Alphabet's largest business, and on that front, the company is seeing growth driven by new AI tools like AI Overviews and AI Mode. The company has a wide moat in search/AI discovery by controlling the distribution channels. This includes its ownership of the market-leading web browser (Chrome) and smartphone operating system (Android), as well as its revenue-sharing deal with Apple that makes Google the default search engine on Apple devices.
Alphabet also has one of the world's leading ad platforms, which helps it monetize consumer AI more effectively than most competitors.
NASDAQ: GOOGL
Key Data Points
Alphabet's fastest-growing business, meanwhile, is cloud computing. The company has a big edge here through its tensor processing units (TPUs), which are custom chips it designed over a decade ago and has built its entire software and hardware stacks around. This gives it a nice cost advantage over companies that are mainly reliant on Nvidia graphics processing units (GPUs). This also lets it train its models and run inference more cheaply. These models are used across Google Search and its other products, creating a nice flywheel effect.
As the most complete AI company, Alphabet continues to look well positioned for the future.