Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) just made a rather 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) still likely required the Oracle of Omaha’s approval. At the end of the day, the big investment was made while Buffett was still the CEO of the company, which, in my view, is about as good as it gets for bulls in shares of Alphabet.
Undoubtedly, the big Alphabet bet seems to rhyme with the Apple (NASDAQ:AAPL) stake that Buffett and Berkshire made many years ago. And while Berkshire trimmed its stake in the iPhone maker once again, Apple remains the largest position in the Berkshire Hathaway public portfolio. And though it’s too early to tell if Berkshire has taken more of a liking to another Magnificent Seven company, I do think that the big question going into the next couple of quarters is whether the legendary conglomerate looks to add to its stake in the firm behind Google.
While a near-$5 billion bet in a single quarter is sizeable, it is noteworthy that Berkshire has built up positions over the span of many quarters, rather than having an entire helping within one single quarter. As the AI and tech pullback were to get nastier going into December, perhaps the price of admission might make shares of Alphabet even more attractive.
Berkshire’s Alphabet bet is a big deal
Either way, Berkshire looks a heck of a lot more AI-savvy after its latest Alphabet bet. And I’m more inclined to think Berkshire won’t miss out on the next big AI rally. However, for the time being, it seems like Berkshire won’t be as moved as investors turn against tech due to their lofty AI spending. In any case, I think Berkshire’s Alphabet bet should give shareholders the confidence and enthusiasm that Berkshire will be ready to ride the AI revolution higher, perhaps in more of a risk-off way.
When it comes to betting on AI at a discount, I think Alphabet is a fantastic way to do it. Even after shares gained just over 3% in a single session of trade (a Buffett premium slapped on), I still view the shares as dirt-cheap at 28.1 times trailing price-to-earnings (P/E). Looking into next year, shares of Alphabet trade at 25.0 times forward P/E, making it the second cheapest Magnificent Seven stock (second to Meta Platforms (NASDAQ:META)) when going by P/E.
In any case, I think Alphabet stock deserves a much fatter Buffett premium, not just because of the modest price of admission, but because of the many AI themes where Alphabet is leading. It’s not just about large language models (LLMs), though Gemini is a force to be reckoned with as the battle with ChatGPT moves into 2026, with the tables beginning to tilt ever so slightly in Google’s favor. Over the long run, AI could allow Alphabet to reignite its growth as it expands into new verticals.
Alphabet’s AI earnings power goes well beyond Gemini and LLMs
Most notably, Alphabet’s AI mobility dominance (through Waymo) could unlock significant growth in the emerging robotaxi market. And given Waymo’s tech seems miles ahead of the competition, I think Alphabet might end up being a leader when it comes to ride-hailing, autonomous delivery, and even drone delivery. Of course, AI mobility and robotaxis represent just one new market that could unlock a wave of growth.
Looking further down the road, I’d also look for Alphabet to make major strides in AI healthcare. Whether we’re talking about AI-driven drug discovery, protein folding, or anything of the sort, I expect Alphabet to be a major player in AI-assisted health. Add the growth potential of the AI cloud, AI ads, and, of course, AI personalization (based on all the Google searches, Gemini prompts, and applications you use, Google has a trove of data to do AI personalization like few others), and it’s clear Alphabet has a ton of AI growth engines.
What about the future of AI search?
Of course, there’s some concern that AI will cannibalize search. But haven’t seen much of that, even after rolling out AI Mode in Google Search. Arguably, I think Search will be even stronger in the AI era. Why? Despite the rise of AI search disruptors, I think 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 of the sort, especially as Gemini becomes more involved. I think many investors are severely underestimating AI search’s resilience amid the rise of new AI search rivals (like Perplexity AI and OpenAI). If anything, more competition could keep Google on its toes so that it can become even better.
Finally, I think its dealings 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 only 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.