In Greg Abel’s first letter to Berkshire Hathaway shareholders as CEO, he promised to preserve the culture at Berkshire Hathaway established by Warren Buffett. He emphasized financial strength and capital discipline as defining factors of Berkshire and its portfolio. But that hasn’t stopped Abel from steering the company toward new investments.
Abel’s largest investment so far has been his purchase of Alphabet (GOOG +0.45%) (GOOGL +0.53%) shares on the open market during the first quarter. He spent an estimated $11 billion buying shares, and he recently added another $10 billion to that investment. While Buffett long eschewed tech stocks like Alphabet, Abel is quickly making it a core holding for Berkshire’s portfolio.
Image source: The Motley Fool.
An $85 billion bet on the future of artificial intelligence
Abel’s $10 billion investment in Alphabet is part of a larger $85 billion equity raise from the tech company. Abel was able to negotiate a discount on the shares in excess of the dilution the company faced from the equity offering. With the latest purchase, Alphabet is set to become Berkshire’s fourth-largest position, according to publicly available information.
Alphabet plans to use the capital raised to fund additional artificial intelligence (AI) infrastructure and help employees pay taxes on stock-based compensation. Both seem like good uses of cash right now, as compute capacity and exceptional engineering talent are key growth drivers for Alphabet’s business.
Google Cloud, Alphabet’s cloud computing platform, is seeing accelerating revenue growth as more capacity comes online each quarter. Management shared plans to spend between $180 billion and $190 billion this year, with a significant increase in spending in 2027. That should fuel continued growth in Google Cloud revenue, which climbed 63% last quarter with operating margin expanding to 32.9% from 17.8% a year ago.
Today’s Change
(0.45%) $1.60
Current Price
$358.16
Key Data Points
Market Cap
$4.3T
Day’s Range
$353.34 – $364.77
52wk Range
$163.33 – $404.47
Volume
314.6K
Avg Vol
20.5M
Gross Margin
60.43%
Dividend Yield
0.24%
A few other factors are driving meaningful growth in the cloud segment as well. The company has made tremendous progress over the last 18 months with its Gemini models, which are now on par with leading models from OpenAI and Anthropic. Additionally, its custom AI accelerator chips, Tensor Processing Units, have proven a good alternative to more expensive graphics processing units.
At the same time, Alphabet’s core business, advertising, has seen improving revenue growth and profits thanks to valuable AI integrations. AI Overviews and AI Mode have increased engagement with Google Search. Additionally, AI has made advertising more effective by enabling better targeting and more effective ad creatives for marketers. As a result, Google Services is also seeing accelerating revenue growth and expanding operating margin.
At around 25 times earnings, Alphabet looks like a good value, given how quickly the company is growing its top line while expanding operating margins across its business. Abel’s decision to double down around the current price makes sense, and considering the amount of capital left to deploy, it won’t be a surprise to see him continue adding to the position if the stock moves lower.
