Why Did Buffett Dump Amazon?

In his final quarter as CEO of Berkshire Hathaway (NYSE: BRK-B), Warren Buffett reallocated his technology holdings. In the process, he sold 75% of his Amazon (NASDAQ: AMZN) position, according to Bloomberg. He has held the stock since 2019.

Buffett also reduced his investment in Apple (NASDAQ: AAPL | AAPL Price Prediction), a move he has made for several quarters.

Like many of the world’s largest investors, Buffett does not always provide a rationale for buying or selling a stock.

Notably, Amazon’s stock has declined 12% over the past year, whereas the S&P is 12% higher. Another contrast is Alphabet’s (NASDAQ: GOOG) stock, which is up 62% over the same period.

What follows is a guess. Amazon has been the leader in cloud computing for several years. However, Microsoft (NASDAQ: MSFT) has recently begun to close that lead based on market share. Amazon’s was 29% late last year. Microsoft’s share rose to 20%. Google is also rising and stands at 13%.

Amazon’s revenue remains dominated by its legacy business. Last year, e-commerce was 82% of its $717 billion in total revenue. However, this business accounted for only 43% of operating income. AWS was 18% of revenue and 57% of operating income. Amazon’s legacy business, founded in 1994, remains a very important part of the company.

And then there is Amazon’s position in the AI sector. It is not clear who will be the leader in that industry in five years. However, it is clear that Amazon faces numerous competitors, including Nvidia (NASDAQ: NVDA), Microsoft, Alphabet, and OpenAI, among others. If it makes investments like the others, its data center investment will run well into the hundreds of billions of dollars.

The losers in the AI race will have invested what could be a crippling amount of money, and have very little to show for it. Buffett may have been anxious about that.