Investors are excited about the growth potential of artificial intelligence and have raced for stocks like AI leaders Nvidia, Microsoft, and Alphabet over 2023 and 2024. But what does Warren Buffett, perhaps the world's biggest investor, think about AI and its potential?
Here's what Buffett and his late partner Charlie Munger said about AI and its impact on investing.
What does Warren Buffett think about artificial intelligence?
“I think that's something that I just don't understand,” Buffett said in an April 2023 interview with CNBC.
Buffett said he was shown ChatGPT by his friend, Microsoft founder Bill Gates, and was surprised by its capabilities.
“I read every book, every legal opinion. The time this saves you when you're doing all kinds of things is incredible,” Buffett said. “I really don't understand it. I think this is an amazing technological advance in terms of showing what we can do, but I don't know if we know what's going to happen.”
Buffett also joked that if someone was going to wipe out humanity, they'd want them to “unplug it.”
Former Google CEO Eric Schmidt has warned about the existential risks posed by AI, and Buffett has noted those concerns.
“If he's scared, I'm scared,” Buffett said.
Manga about artificial intelligence
Charlie Munger, who died in November 2023, was Buffett's longtime partner and Berkshire Hathaway vice chairman, but he was skeptical of the excitement surrounding artificial intelligence.
“I think artificial intelligence is very important, but there's also a lot of crazy hype around this,” Munger said in February 2023. “Artificial intelligence won't cure cancer. It won't do everything we want. And there's a lot of nonsense in it.”
Buffett: “Change is not an investor's friend''
When it comes to new technologies and rapidly changing industries, Buffett often prefers to sit on the sidelines. Berkshire Hathaway is now one of Apple's largest shareholders, but he has sometimes been criticized for being slow to recognize the value of certain tech companies.
“The key to investing is not to evaluate how much an industry will impact society or how much it will grow, but rather to evaluate the competitive advantage of a particular company and, above all, its “It is a judgment of sexual sustainability,” Buffett wrote. In 1999, the tech bubble was nearing its peak.
Buffett says that rather than looking for companies that will grow with new technology, investors are often better off looking for things that will stay the same.
“The Internet is not going to change the way people chew gum,” Buffett told students in a 2001 lecture. “It doesn't matter what gum you chew.”
Throughout history, new industries have emerged that have profoundly changed society and our daily lives, but Buffett says that doesn't mean they will make a profit for shareholders. Airlines and automakers are two of his examples of companies that fundamentally changed the world but mostly disappointed investors.
Buffett once said he would like to think that if he had been at Kitty Hawk when Orville Wright took flight in 1903, he would have shot him down. “Karl Marx could not have done as much damage to capitalists as Orville,” Buffett said.
Responding to a question about the impact of artificial intelligence on society and markets at the 2023 Berkshire Annual Meeting, Munger said he thinks “old-fashioned intelligence works pretty well.”
AI as an investment tool: What to watch out for
With the introduction of tools like ChatGPT and Google's Bard, investors may be keen to leverage AI in their investment decisions. These tools help generate answers to questions that require sifting through large amounts of data.
You may be able to easily get an overview of your business or industry and which trends to watch. AI models can also quickly incorporate different performance metrics for different investments and asset classes, saving investors time and resources.
Although these tools are designed to analyze vast amounts of data, they may not be very helpful when it comes to investment decisions. After all, investing success depends on the future, which AI cannot predict.
The accuracy of answers generated by AI can also pose challenges. In some cases, an AI model may “hallucinate” and fabricate information that is not true, even if it sounds perfectly accurate. Investors will want to review the information provided by these new tools before relying on them to make decisions. While AI may be able to provide general investment advice just like a financial advisor, it is less likely to provide encouragement and wise advice during market downturns, as the best financial advisors do.
