All eyes were on what Berkshire Hathaway (NYSE:BRK.B | BRK.B Price Prediction) was up to in its very first quarter with Warren Buffett’s successor, Greg Abel, at the helm. We’ve all heard about the size of the shoes that Abel will need to fill as the new CEO of the legendary conglomerate.
In the first quarter, Mr. Abel did not disappoint as Berkshire made waves with a big $10 billion bet on Alphabet (NASDAQ:GOOGL) shares, a significant top-up to an existing position made in the back half of last year. Undoubtedly, the Oracle of Omaha is still chairman, so even if it’s Mr. Abel who has the last say as CEO, one has to think the move has Buffett’s blessing.
Alphabet has become Berkshire’s horse in the AI race
Either way, the initial Alphabet position was made under the Buffett era. Back then, Berkshire was dipping a toe into the Alphabet waters. After this latest $10 billion bet, though, it’s clear that Berkshire is serious about the Magnificent Seven darling, which, I think, doesn’t really fit the bill as a company the Buffett of old would have ever invested in. Though it’s unclear whose idea it was to bet on Alphabet, I think it’s clear that Berkshire under Abel is a new kind of beast.
It’s a conglomerate that’s not to take big swings in the wild world of AI. While I’m sure many investors would consider Alphabet (and Google) to be a tech firm, it may come as a surprise to discover that it’s actually in the communications services sector. In other words, you might not find it at the core of your favorite tech sector ETF.
So, while it appears Berkshire under Mr. Abel’s leadership is taking a far more tech-savvy approach to investment, I’d argue that the move isn’t all too out of the ordinary, especially when you consider that Google itself has become quite the consumer-facing business, just like Apple (NASDAQ:AAPL).
From Gmail to Google Search and Gemini, Alphabet seems to have a “moaty” ecosystem, one that AI could make even “moatier” with time. The consumer moat is evident, and it just so happens that Google is on the frontier of AI innovation, with impressive products across the stack, from chips (TPUs) to a slew of applications.
Any way you look at it, I’m not all too surprised that Berkshire is upping its bet on Alphabet, especially as Google looks to level up its AI infrastructure game, which was arguably already at a high point, with its latest $80 billion equity raise.
Get ready for more big spending at the frontier
Just when you thought that the big AI data center buildout would peak out and pull back, Alphabet is making an even bigger push, and that’s probably going to set the stage for more and more spending over the years to come. Indeed, the hyperscalers have already signaled to expect bigger CapEx going into 2027, so the latest move probably shouldn’t come as a big surprise.
With shares sagging close to 4% in a single day, perhaps it’s a great time for dip-buyers to jump in, especially since Alphabet arguably earned the right to keep on spending on the effort.
Though time will tell if the latest marginal investment will be met with decent rewards, I do think that it’s hard to argue that Alphabet stands out as a sleep-easier frontier-grade AI play relative to the likes of OpenAI.
Indeed, the current state of OpenAI’s financials may be a concern to all but the most aggressive of growth investors, whereas Google has the colossal cash flows to back itself up.
Why bother with AI IPOs when there’s a frontier-grade AI blue-chip in Alphabet that’s already cheap
While I’m sure there will be fireworks for OpenAI’s coming IPO moment, I do think that Alphabet is the smart AI play, especially as shares come in due to renewed CapEx jitters and perhaps preparation for the AI IPO boom to come, which might take capital out of perfectly good companies like Alphabet.
In any case, Alphabet stock stands out as a relative value play, even if the trailing price-to-earnings (P/E) multiple is slightly on the higher end, now at 27.6 times. Any way you look at it, Berkshire is not being left behind as the AI revolution progresses.
If anything, I’m inclined to view the latest big vote of confidence from Berkshire under Mr. Abel as the ultimate thumbs up as investors ponder whether AI is in a bubble or not.
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