Buffett's Alphabet Bet: Should You Follow Him In?
💡 Key Takeaway
Warren Buffett personally initiated Berkshire's Alphabet stake, signaling conviction, but he also flagged AI spending risks; the real case for buying Alphabet is its 20%+ growth and accelerating cloud business at a reasonable valuation.
What Happened: Buffett Reveals He Made the Call on Alphabet
Warren Buffett disclosed in a CNBC interview that he, not CEO Greg Abel, was behind Berkshire Hathaway's large Alphabet investment. He admitted that not buying the search giant sooner was a mistake.
Berkshire first disclosed its Alphabet stake in Q3 2025, then tripled it early this year. In June, it agreed to buy $10 billion of stock directly from Alphabet in a private placement to help fund AI build-out. The position is now worth about $31 billion.
Buffett was candid about his view, saying he doesn't like Alphabet as well as 'at least four or five other businesses' and flagged the enormous AI spending by Alphabet and its rivals. He also made clear that Abel is the decider at Berkshire.
The stock traded near an all-time high on the news, up about 3% on the day and more than double where it sat a year ago.
Why It Matters: Strong Growth vs. AI Spending Risks
Alphabet's Q1 2026 results showed 22% revenue growth to $109.9 billion, its 11th straight quarter of double-digit growth. Operating margin expanded to 36.1%, and earnings per share soared 82% to $5.11.
Google Cloud is the standout, with revenue jumping 63% to $20 billion and a backlog of $460 billion, nearly doubling from the prior quarter. This gives Alphabet a second growth engine beyond advertising.
However, Buffett's concern about AI spending is valid. Alphabet expects $180-190 billion in capital expenditures this year, with more to come. If those investments don't pay off, free cash flow and margins could suffer.
At 28 times earnings, Alphabet trades at a slight premium to the S&P 500 but cheaper than most megacap AI peers. For a business compounding at over 20%, this valuation is reasonable.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Alphabet is a buy at current levels due to strong growth and reasonable valuation.
Alphabet's 20%+ revenue growth, accelerating cloud business with $460B backlog, and reasonable 28x P/E make it attractive. While AI spending is a risk, the company's scale and diversified revenue streams provide a margin of safety.
What This Means for Me
