In a significant portfolio addition, Berkshire Hathaway Inc. (BRK.A，BRK.B), the conglomerate led for decades by legendary investor Warren Buffett, has established a new $5.18 billion position in Alphabet Inc. (GOOG，GOOGL), the parent company of Google. According to a 13F filing released last Friday, Berkshire purchased 17.86 million shares in the third quarter, a stake valued at approximately $4.3 billion at the time of purchase, making the search giant Berkshire’s tenth-largest equity holding.
This investment marks a further evolution in the investment philosophy of the “Oracle of Omaha.” Buffett has historically been hesitant about technology stocks, famously expressing caution in 1999 by stating that while the internet would have a huge impact on the world, it didn’t necessarily make for an easy investment decision.
However, the famed investor has shown increasing flexibility. His stance on the tech sector has softened in recent years, evidenced first by a major move into Apple Inc. in 2016, which remains Berkshire’s largest single stock holding, and later by a stake in Amazon.com Inc., now worth about $2.3 billion. This new, larger bet on Alphabet further underscores a pragmatic and adaptable approach to high-quality technology companies late in Buffett’s career.
Berkshire’s decision to initiate a position in Alphabet now is particularly intriguing. Despite being a member of the “Magnificent Seven” stocks, Alphabet entered the year with a relatively low valuation compared to its peers, trading at a price-to-earnings ratio of around 20. This was largely due to significant market fears that its core search business could be disrupted by the rise of AI-powered chatbots.
These concerns peaked earlier in the year when Alphabet’s Q1 paid-click growth rate decelerated sharply to just 2%, intensifying worries that its search growth was plateauing and putting downward pressure on the stock.
A pivotal turning point came with the company’s Q2 earnings report in late July. Alphabet not only handily surpassed revenue and profit expectations but, more critically, reported a reacceleration of paid-click growth to 4%. This improvement likely served as a key catalyst for Berkshire’s decision, providing preliminary evidence that Alphabet’s innovations—such as integrating “AI Overviews” into search results and launching the Gemini-powered “AI Mode”—were successfully defending its search moat against competitive threats.
The subsequent Q3 earnings report further reinforced this positive trend, with paid-click growth accelerating to 7% year-over-year. This indicates that Alphabet’s search ecosystem remains robust, with user engagement potentially enhanced by its own AI integrations.
Beyond its core search and advertising business, which generated $72.3 billion in Q3 revenue (72% of the total), Alphabet’s other segments show formidable potential:
While it is unclear whether the investment was made by Buffett himself or his investing lieutenants, Todd Combs and Ted Weschler, the move aligns with the principles of value investing.
Alphabet possesses a wide economic moat, diverse and robust cash flows, and a clear path to fortifying its core business with AI. While the market undervalued the company due to short-term fears, Berkshire recognized its long-term growth certainty. With concerns over Search easing, the cloud business growing profitably at a high rate, and the stock still trading at a reasonable 28 times trailing earnings, Berkshire Hathaway’s major bet on Alphabet is beginning to look like another prescient investment in a long history of them.
