There's a new stock in Berkshire Hathaway's (BRK.A 0.03%) (BRK.B +0.14%) portfolio. The company, which has been led for six decades by its famed CEO Warren Buffett, disclosed it purchased 17.86 million shares of Alphabet (GOOG +0.41%) (GOOGL +0.71%), in a stake valued at $5.18 billion.
The investment is a departure from Buffett, who has previously expressed hesitation about buying tech stocks. However, Buffett has softened his tone on the sector in recent years, and this investment suggests that even in the twilight of his career, the Oracle of Omaha knows a good investment when he sees one.
Image source: Alphabet.
Buffett's evolution on tech stocks
While it's unclear if it was Buffett or one of his lieutenants who pulled the trigger on Alphabet stock, Buffett has long resisted investing in the company. In 1999, Buffett showed reluctance toward internet stocks in general. "The internet will have a huge impact on the world, but I'm not sure that it makes it an easy investment decision," he said at Berkshire Hathaway's annual meeting.
Two decades later, an interviewer asked Buffett specifically about Google (as Alphabet was then known) and Apple. He called them "extraordinary companies," but that didn't change his overall stance. "I would not be at all surprised to see them be worth a lot more money 10 years from now, but I wouldn't want to buy either one of them," he said.
NASDAQ: GOOGL
Key Data Points
Of course, Buffett later became a major investor in Apple, and Berkshire Hathaway continues to hold nearly $64 million shares of Apple stock -- the conglomerate's biggest single holding. Berkshire Hathaway eventually took a smaller stake in another tech stock, purchasing 10 million shares of Amazon, now worth $2.3 billion.
Berkshire Hathaway's investment in Alphabet
Notably, Berkshire Hathaway's investment in Alphabet is twice the size of the company's bet on Amazon. Both companies are leading hyperscalers, actively expanding their data center capacity to meet the demand of companies and developers creating artificial intelligence (AI) platforms, as well as clients who want cloud or hybrid environments.
Google Cloud has a 13% market share in the global cloud computing market, trailing both Amazon Web Services (29%) and Microsoft Azure (20%). The business is both lucrative and growing rapidly, reporting $15.15 billion in revenue in the third quarter, a 33% increase from the same period a year ago.
But Alphabet is much more than that as well. Alphabet earned $102.34 billion in revenue in the third quarter, with 72% of that coming from its powerful advertising network, which includes Google Search, YouTube advertising, and the Google Network. All in all, advertising revenues were up 12.6% from a year ago.
Why Alphabet makes sense in a Berkshire Hathaway portfolio
There are many similarities between Apple, Amazon, and Alphabet. All of them have strong ecosystems, loyal customers, and dominant market shares (Alphabet has a 90% share in global internet search, and its Chrome browser has a 73% market share.)
While Buffett isn't the most tech-savvy investor, he knows good businesses, and he's not afraid to change his mind. Alphabet provides multiple streams of revenue, strong profits, and has a long-term growth window -- making this AI stock an ideal pick for Berkshire Hathaway today.
