Warren Buffett warns on AI as Berkshire Hathaway’s cash pile nears US$200 billion
At the grand old age of 93, none of us know how many more shareholder meetings Warren Buffett will host but once again he has really held the attention of Berkshire Hathaway investors over the weekend.
While this was his first meeting without his sidekick Charlie Munger who died at the age of 99 last year, Buffett showed that he still has what it takes to run one of the world’s most successful and largest investment companies.
There were some hints about his mortality – particularly his parting line that: “I not only hope that you come next year, but I hope that I come next year.”
The biggest was that he allowed his chosen successor – Greg Abel – to take a lot of the spotlight during the meeting as well as insurance chief Ajit Jain.
Not a damn thing
However, the meeting over the weekend also showed plenty of the old Buffett sense of humour and also humility as he admitted that he “doesn’t understand a damn thing about it’’ when referring to Artificial Intelligence (AI) but had already learned that it could be a force for evil as well as good.
Buffett said that AI scams could become “the growth industry of all time” after he was made aware of a fake video made of himself that had the potential to trick people out of their money.
He predicted scammers will seize on the technology, which could match some of the good society can do with the technology with plenty of harm.
Still, Buffett has made plenty of money out of businesses using technology – Apple being one – so if there is money to be made out of AI, you can be fairly sure that Berkshire Hathaway will – cautiously and after a lot of analysis – grab the opportunity.
Cash pile heading for US$200 billion
One of the most interesting things to emerge from the meeting is that the company’s cash pile continues to grow, reaching a record US$189 billion (A$290 billion) at the end of the first quarter and looks set to breach the US$200 billion mark soon.
Berkshire Hathaway also revealed that first-quarter operating earnings reached US$11.2 billion, well above US$8.07 billion for the same period the previous year as the insurance businesses increased profits.
Buffett has previously said that a lack of meaningful deals was behind the growing cash pile, with fewer really big deals that the company could pull off to move the needle on their financial performance.
“We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money,” Buffett said, referring to what he called an unrivalled mountain of capital that could be rapidly deployed.
Until any monster deals come along, the mass of cash is still enabling some meaningful moves – the main one being a US$2.6 billion share buyback in the first quarter.
Cash still earning strong returns
Higher interest rates have also driven up interest and other investment income to US$1.9 billion, from US$1.1 billion in the first quarter of the previous year, helping to ease the burden of having so much cash on the balance sheet.
Buffett also showed the usual financial discipline, reporting a US$135.4 billion stake in Apple which is well down on the US$174.3 billion reported at the end of the year.
While Apple remains the company’s biggest holding, it has been trimmed significantly as Apple faces a number of headwinds including a US$2 billion anti-trust fine, slumping sales in China and the scrapping of a decade-long car project.
As usual, there is little room for emotion or attachment to a particular stock, even one that has impressively driven up past returns.
Analysts welcome the new guard
Analysts on the whole were impressed with the potential Buffett replacements Greg Abel and Ajit Jain.
Buffett said Abel would oversee the operating businesses and any acquisitions rather than the pair sharing investment duties.
“He understands businesses extremely well. And if you understand businesses, you understand common stocks,” Buffett said.
Buffett said the ultimate decision would lie with the board but he did warn that he might come back and haunt them if they try to do it differently.
Already the two top executives take virtually all of the calls from the managers of Berkshire Hathaway businesses.
“This place would work extremely well the next day if something happened to me,” Buffett said, although many shareholders and other investors would certainly miss the folksy words of wisdom and humility of the man who is without doubt the greatest investor of recent times.