Google and YouTube owner Alphabet (NASDAQ: GOOGL) – which is listed on the Nasdaq – is a stock that has divided opinion in recent years. While some investors have viewed it as risky (due to disruption to internet search from ChatGPT) others have seen it as a value tech stock.
One company that seems to like it is Berkshire Hathaway – Warren Buffett’s investment firm. It recently bought around 18m shares in the tech company.
Buffett is investing in AI
Late last week, Berkshire Hathaway filed its 13F report for Q3 with US regulators. These reports reveal what US stocks large investment managers bought and sold in the previous quarter.
Now, the filing shows that Buffett and his team bought and sold a few different stocks over the third quarter. But what jumped out to me (and probably many other investors) in Berkshire’s 13F filing was that it bought Alphabet stock for the first time ever.
We don’t know what price Berkshire paid for the stock (it traded between $176 and $243 during Q3). We also don’t know whether it has bought or sold shares in the tech giant since the end of the quarter.
What we do know, however, is that at the end of Q3, Berkshire owned 17,846,142 Alphabet shares. That position was worth approximately $4.4bn.
My take on this trade
Now, to my mind, Buffett is on to a winner with Alphabet. This company has so much going for it including:
- An extremely dominant market position in internet search globally
- Tons of powerful AI tools such as Google’s AI Overviews and AI Mode that can help fend off ChatGPT (which is a risk)
- Billions of customers using its Gmail, Google Drive, and Google Maps services
- A streaming service (YouTube) that generates almost as much revenue as Netflix
- A cloud computing division that’s growing faster than those of Amazon and Microsoft
- A self-driving car unit that’s generating far more revenue than Tesla’s robotaxis
- A rock-solid balance sheet
And it has been really cheap at times. For example, in Q2 (just before Buffett and his team bought it), it was trading on a price-to-earnings (P/E) ratio of just 17.
At the time, I called it a “value tech stock“. Meanwhile my colleagues Ben McPoland and Dr James Fox said it was “far too cheap” and “on sale“.
I’m just surprised Buffett and his team didn’t buy it earlier. For me, this stock has been a bit of a no-brainer investment for years now.
I first bought it back in 2019. Since then, it has risen more than four-fold.
Worth a look today?
Should investors consider following Buffett into Alphabet if they don’t already own the stock? That’s actually a tricky one.
While I see a lot of long-term growth potential here, the stock has had a huge run in recent months. Since the start of Q3, it has surged from $176 to $276 (a gain of almost 60%).
After that gain, I think it could be worth thinking about waiting for a pullback. I reckon that with a bit of patience, investors will be able to get it cheaper.
That said, some of my colleagues still see value in the stock today.
