Berkshire Hathaway (BRK-B) bought a $4.9 billion stake in Alphabet last quarter.
Alphabet trades at 28.1 times the trailing P/E and 25.0 times the forward P/E.
Waymo’s autonomous technology leads competitors in the emerging robotaxi market.
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Warren Buffett Berkshire Hathaway (NYSE:BRK-B) just made a pretty surprising bet on shares of AI titan Alphabet (NASDAQ:GOOG) last quarter. And while Ted Weschler and Todd Combs might have more to do with the investment than Buffett himself, the magnitude of the bet ($4.9 billion stake) likely still required approval from the Oracle of Omaha. At the end of the day, the big investment was made while Buffett was still CEO of the company, which in my opinion is as good as it gets for bulls on Alphabet stock.
Without a doubt, Alphabet’s big bet seems to rhyme with Apple (NASDAQ:AAPL) that Buffett and Berkshire made many years ago. And although Berkshire again cut its stake in the iPhone maker, Apple remains the largest holding in Berkshire Hathaway’s public portfolio. And while it’s too early to say whether Berkshire has taken a liking to another Magnificent Seven company, I think the big question going into the coming quarters is whether the legendary conglomerate is looking to increase its stake in the company behind Google.
While a nearly $5 billion bet in a single quarter is sizable, it’s worth noting that Berkshire has built up positions over many quarters, rather than taking full help in a single quarter. With the AI and technology pushback set to worsen in December, perhaps the entry price could make Alphabet stock even more attractive.
Either way, Berkshire seems much more AI-savvy after its latest bet on Alphabet. And I’m more inclined to think Berkshire won’t miss out on the next big AI rally. For now, however, it looks like Berkshire won’t be as moved as investors turn against the technology due to its high spending on AI. In any case, I think Berkshire’s bet on Alphabet should give shareholders confidence and enthusiasm that Berkshire will be prepared to take the AI revolution to a higher level, perhaps without taking risks.
When it comes to betting on discount AI, I think Alphabet is a fantastic way to do it. Even after the stock gained just over 3% in a single trading session (a Buffett premium was applied), I still consider the stock to be very cheap, with a price-to-earnings (P/E) ratio of 28.1 times. Looking ahead to next year, Alphabet stock trades at 25.0 times forward P/E, making it the second-cheapest Magnificent Seven stock (second only to Metaplatforms (NASDAQ:META)) when going by P/E.
In any case, I think Alphabet stock deserves a much higher Buffett premium, not only because of the modest entry price, but because of the many AI themes in which Alphabet leads. It’s not just about large language models (LLMs), although Gemini is a force to be reckoned with as the battle with ChatGPT moves into 2026, with the tables starting to tilt slightly in Google’s favor. In the long term, AI could allow Alphabet to reignite its growth as it expands into new verticals.
In particular, Alphabet’s mastery of AI mobility (via Waymo) could unlock significant growth in the emerging robotaxi market. And since Waymo’s technology appears to be miles ahead of the competition, I think Alphabet could end up being a leader when it comes to ride-sharing, autonomous deliveries, and even drone deliveries. Of course, AI mobility and robotaxis represent just one new market that could unleash a wave of growth.
Looking ahead, I would also expect Alphabet to make major strides in AI healthcare. Whether we’re talking about AI-powered drug discovery, protein folding, or anything like that, I expect Alphabet to be a major player in AI-assisted health. Add in the growth potential of AI cloud, AI ads, and of course AI personalization (based on all your Google searches, Gemini messages, and the apps you use, Google has a wealth of data to personalize AI like few others), and it’s clear that Alphabet has plenty of AI growth drivers.
Of course, there is some concern that AI will cannibalize search. But I haven’t seen much of that, even after implementing AI Mode in Google Search. Arguably, I think search will be even stronger in the age of AI. Because? Despite the rise of AI search disruptors, I believe Google has more data to do the job better.
And since the product is already so entrenched, it’s harder for people to switch from Chrome, Android, Gmail, or anything like that, especially as Gemini becomes more involved. I think many investors are seriously underestimating the resiliency of AI search amid the rise of new AI search rivals (like Perplexity AI and OpenAI). If anything, more competition could keep Google on its toes so it can be even better.
Finally, I think its deals with Apple could further strengthen the titan’s AI search moat. If there’s a search deal with Apple and an AI deal, it’s natural to think there would be an AI search deal, and I think that could allow Google’s AI search to grow, even in the face of increased competition.
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