Warren Buffett's Stark Warning About 'AI Stocks'

We let a genie out of a bottle when we develop nuclear weapons, and AI is somewhat similar.

All right team, we've got a lot more to talk about. As you guys would have seen in my last video, I am here in Omaha covering the Berkshire Hathaway shareholder meeting. In the last video, we took the time to hone in on what was definitely the biggest news of the day: that being Berkshire's 133% reduction in Apple stock. However, there was a lot more stuff to come out of the Berkshire meeting that I still wanted to bring to you guys.

From Buffett's thoughts on AI, to the US debt pile, to even the amazing tribute to the late Charlie Munger including a slightly awkward mishap from Warren which we'll talk about at the end of the video. So in this video, let's cover everything else that happened that wasn't the big Apple news.

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But with that said, let's turn back to the Berkshire meeting. I think the biggest headline that I've seen in the news was Buffett discussing his thoughts on the current development of AI because he had a pretty scary comparison. "I don't know anything about AI. That doesn't mean I deny its existence or importance or anything of the sort." Last year, I said, "We let a genie out of a bottle when we developed nuclear weapons, and that genie has been doing some terrible things lately." The power of that genie, you know, scares the hell out of me. On the other hand, I don't know any way to get the genie back in the bottle, and AI is somewhat similar.

So Buffett likened the development of AI to the development of the atomic bomb back during World War II. He's not the first to make this kind of alarming comparison. One notable figure that you guys will all know on the front line of AI development is of course Elon Musk, and he's been pushing for years to get AI regulated fast before it can no longer be controlled.

Interestingly, Buffett actually said the reason he finds the tech so worrying is because of an actual experience he had recently. "I saw an image in front of my eyes on the screen. It was me, and it was my voice, and I was wearing the kind of clothes I wear. My wife or my daughter wouldn’t have been able to detect any difference, and it was delivering a message that no way came from me." So when you think of the potential for scamming people, if you can reproduce images that I can't even tell, "Hey, I need money. I need to throw $50,000 wired." I mean, scamming has always been part of the American scene; if I was interested in investing in scamming, it's going to be the growth industry of all time.

It's enabled in a way I now maybe—I know obviously it has enormous potential for good and enormous potential for harm, and I just don't know how that plays out. Honestly, we've already seen AI used in scamming, but you'd imagine it would only get worse as the technology gets better. Even for us in the office, it's amazing how closely we can mimic the voices of people like Jamie Dimon or even my podcast co-host, Tami.

But beyond just talking about the potential danger of AI, I think we can also rest the idea that Buffett will be making any sort of investments in this field. As Buffett says, he simply doesn't know anything about it. He actually took the time during the meeting to discuss this age-old value investing principle of sticking inside your circle of competence.

When he was asked about whether he would look to invest more in China across the coming years, he said, "Our primary investments will always be in the United States. You won't find us making a lot of investments outside the United States, although we're participating through these other companies in the world economy. I understand the United States' rules, weaknesses, strengths, whatever it may be. I don't have the same feeling for economies generally out around the world. I don't pick up on other cultures extremely well, and lucky thing is I don't have to. I don't live in some tiny little country that doesn't have a big economy. So we will be American-oriented. If we do something really big, it's extremely likely to be in the United States. We feel that we're very less likely to make any truly major mistakes in the United States."

In many other countries, of course, there are always exceptions to the rule, and Buffett noted one instance he did feel very comfortable with was the diversified investment into the Japanese trading houses. But generally speaking, he will stick to the market within his circle of competence: that being America.

While this is mostly to do with the circle of competence, this is also just a function of having to focus purely on positions that move the needle for Berkshire. Because Berkshire is so large, Buffett has a limited number of companies that he can actually invest into or buy that will significantly move the needle for Berkshire, and that naturally limits him to mostly US stocks. "We're not in the business of going out after small acquisitions, and we just don't have the people for it, and it wouldn't move the needle anyway."

Because America is home to some of the largest companies in the world, naturally most of Buffett's focus will be on businesses in the US. But with that said, let's now move on to a different topic: the macro. So inflation, interest rates, and what he focused on this year, which was the big debt pile of the US government.

But before I do, I do just want to let you guys know, as I did in the last video, that actually the only reason that myself and Heish are even in Omaha covering the meeting this year for you guys is because of a sponsor, and that sponsor is Morning Brew. So I would really, really appreciate it if you like the Berkshire Bonanza videos that myself and Heish put together, and you'd like to support our trip. I'd really appreciate it if you signed up to Morning Brew. What it is is a daily newsletter that talks about all the latest stock market and business news, but it doesn't drag on and bore you to tears.

The newsletter is usually about a 5-minute read, and it covers all the major headlines, but it's actually really engaging and witty, so it's fun to read. I think it's a really great service. I've personally been reading for years now, and the best part of it is that it's free. So if you guys would like to support our trip and Morning Brew as well, please head to the link in the description and the pinned comment and sign up for their newsletter. Again, it's totally free to do so, so I really appreciate it, and thanks very much to Morning Brew for being such a great supporter of the channel.

Now moving on to the macro, as I said before, the main topic of conversation in this meeting was the big US deficit and subsequent debt pile that looms over the American economy. Buffett was even asked his opinion on whether the US dollar could even lose its reserve currency status if things don't change in the future. "Do you think that at some point in time the world market will no longer be able to absorb all of the US debt being offered?" The answer, of course, I don't know, but my best speculation is that US debt will be acceptable for a very long time because there's not much alternative.

But it won't be the quantity; you know, the national debt was nothing to speak of for a long, long time, and then it won’t be the quantity. It'll be whether in any way inflation would get let loose in a way that really threatened the whole world economic situation. There really isn't any alternative to the dollar as a reserve currency. You get a lot of people giving you a lot of speeches on that, but that really is the answer.

Warren was quick to step in and quell concerns about the US reserve status. A lot of people have raised opinions on this, even people like Ray Dalio, with major buyers of US Treasury such as Japan keeping their current holdings stagnant, China pulling back on their treasury ownership over the last few years. But Warren is quick to point out that there really isn't an alternative to the dollar on the horizon anytime soon, and he's right.

He does, however, think there needs to be a lot less media attention on the Fed's movements and actually a lot more focus on the fiscal deficit, which he describes as the real problem. In fact, in 2022, the US deficit was a whopping $1.7 trillion. "I worry about the fiscal deficit, but I'm not a worrier just generally. I mean, I think about it, and it's interesting. I think media enters into this, and it focuses on the Fed. You know, they just love it because things are always happening, and economists are always saying what's going to happen with the Fed and everything else. But the fiscal deficit is what should be focused on. Jay Powell is not only a great human being, but he's a very, very wise man. But he doesn't control fiscal policy, and every now and then, he sends out a kind of a disguised plea for please, please pay attention to this because that's where the trouble will be."

Long story short, stop worrying about the Fed and pay more attention to the root cause of the macroeconomic worries: the insane deficit that causes the debt pile to grow bigger and bigger every single year. Heish actually showed me a stat the other day that in fiscal year 2024, the US government is running a cumulative deficit of $1.1 trillion. Because that debt pile has swollen now to such a high level over the past 20 years, 43% of the increase in the government's outlays in March was actually just from an increase in net interest payments. Nearly half of the increase in the government's expenses are from debts turning over at higher rates.

So Buffett is saying that people are looking at that stat and putting the blame on the Federal Reserve for hiking interest rates, right? But really, the problem here is that the government needs to return to surplus as soon as it possibly can so it can start lowering that big debt pile that's causing America so much pain. So that was Buffett's macro take. He also indirectly made comment on the stock market's valuation.

I spoke a lot about this in my last video, but Berkshire currently has a cash pile of $189 billion, and despite this, he still took the opportunity to turn some of their Apple stock back into cash. When asked why Buffett is sitting on such a big cash pile, this is what he had to say: "You're sitting on $168 billion of cash, which you told us today is now more than $182 billion. What is Buffett waiting for, and two, why not at least deploy some of it?" "Well, I think that's pretty easy to answer. I don't think anybody sitting at this table has any idea of how to use it effectively, and therefore we don't use it. There have been times in my life that I've been awash in so many opportunities that I could have invested everything by nightfall, and then there's other times when the year goes well—not in the early days, but now we haven't seen anything that makes sense that moves the needle. It's just that things aren't attractive, and there are certain ways that can change, and we'll see whether they do."

So Buffett really not finding anything he wants to sink significant amounts of Berkshire cash into right now. But beyond that insight, really what I took out of the meeting, in particular on this topic, is that at the current time, this also isn't actually bothering him. Normally he's frustrated to have such a large amount of cash on the sidelines, but throughout the meeting, he made references to the fact that actually he's pretty happy sitting on this cash pile. "But I don't mind at all under current conditions building the cash position. I think when I look at the alternative of what's available in the equity markets, and I look at the composition of what's going on in the world, we find it quite attractive."

The reason it's quite attractive is, of course, because short-term treasury bonds at the moment are still giving that cash a 5.12% return, which is obviously much different from the effective zero return he was getting on the cash pile back in 2020. So overall, that is Warren Buffett's thoughts on AI, on investing in China, on the macroeconomic situation, on the stock market, on Berkshire's massive cash pile.

There were a lot more topics covered, but probably the last one I'll touch on before talking about all the Charlie Munger tributes was actually this piece of life advice that he gave to everyone in the room. "Have a listen: if I had one piece of advice, I would really sort of use Charlie's advice of thinking how you like your obituary to read, and then start selecting the educational path, the social path, and start today to go on the path that leads to that goal, and expect some difficulties along the way. But if you're thinking that way, you're more likely to get there."

With that, I thought at the end of the video, I'd just touch on really what was the theme of the weekend—that was honoring the life of Charlie. As I'm sure a lot of you guys are also curious as to what it was like in the room, honestly, it was a really, really amazing tribute for him. For example, Berkshire Hathaway usually plays a mini-movie to get everyone warmed up before the meeting begins, and this year, it was just a full 20 to 25 minutes of Charlie's life and his best one-liners. It was honestly really nice to see; he got a standing ovation at the start of the day, and there was just a lot of love throughout the meeting for Charlie.

In fact, actually, something that was a little bit awkward: at one point, Buffett actually pretty much broke the hearts of everyone sitting in the room as he finished a monologue and then he actually turned and prompted Charlie to speak. "Oh man, it was a little bit sad to the idea of utilities being treated fairly. Charlie! Charlie!" I'm so used [Applause]. I had actually checked myself a couple of times already, but I'll slip, I'll slip again. Greg actually brushed it off so well, but man, I think everyone's heart broke a little bit when Buffett slipped up there.

Honestly, you did feel the hole sitting there in the crowd; you did feel that Charlie was missing, which was sad. But to his credit, Greg, who will be the CEO of Berkshire once Buffett is gone, he did a really good job of not replacing Charlie but just joining Warren up there for the entirety of the meeting, and honestly, he did a great job. I think a lot of shareholders left the room confident in the future of Berkshire Hathaway under Greg, Ajit, Ted, and Todd's leadership.

So overall, that was the Berkshire Hathaway shareholder meeting for 2024. Hope you guys enjoyed the video! Again, a quick reminder about New Money Education: 50% off with the coupon code Berkshire 24. A big thanks to Morning Brew for sponsoring this trip as well, and I am just about to start the very long journey back home to Australia. It's about a 26 to 27-hour transit time, so I'm about to hop on a plane. But guys, I will see you all next week when I'm back.