Broadcom CEO: Investors are ignoring a key lesson from Warren Buffett
In very frank comments, Broadcom CEO Hock Tan called out investors for not knowing what they were investing in, evoking a classic Warren Buffett tenet. But investors may not have much choice.
Warren Buffett famously advocated for investing in companies that you understand.
“What an investor needs is the ability to correctly evaluate selected businesses,” he wrote in his 1996 letter to Berkshire Hathaway investors. “You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Broadcom (AVGO) CEO Hock Tan says too many people have blown past those boundaries and are blindly investing.
“A lot of investors have no clue what they are investing in,” he said in Singapore, Bloomberg reported. These investors, he added, have “extreme expectations only to find out that it’s almost like they are in a casino.”
Buffett himself was not always the most savvy tech investor, a fact he lamented when discussing Google, which was out of his “circle,” so he bought very late. But the rise of even harder-to-understand AI stuff has made following this Buffett tenet way more difficult. We do not all have Ben Affleck-level AI comprehension (watch this if you haven’t), and no one wants to get left behind.
It’s easy to see where Tan and Buffett are coming from, and why the latter advocated for a simple index fund, arguing most people would be better off.
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To be clear, Tan is bullish — he runs Broadcom. But in the long term, he’s worried about the industry running out of capital and admits that profitability will hinge on proving AI’s utility to businesses. Many of which, he said, might be just “wasting money.”
Tan’s reminder can be said another way: Yes, all the impressive AI things we see are very impressive. But they are also impressive in the same way a Ferrari is impressive — it can drive like that because it’s expensive. And that it may not actually be that useful for its high cost in every business case.
Still, it’s hard for regular retail investors not to see the massive bets made by Meta (META), Microsoft (MSFT), Alphabet (GOOG, GOOGL), and others and not assume they’re simply following an entity that knows more than they do about the technology and its implications — with conviction strong enough to bet huge on it.
But perhaps the lesson is in the nuance of Tan’s comments: Avoid the “casino” aspect of the AI trade, not necessarily the trade itself. With a huge chunk of the S&P 500 bolstered by AI, you can’t anyway, even if you heed the Oracle of Omaha’s still-relevant advice.
Ethan Wolff-Mann is a Senior Editor at Yahoo Finance, running newsletters. Follow him on X @ewolffmann.
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