Key Points
1. Berkshire Hathaway ownedroughly $4.3 billion worth of Alphabet as of Sept. 30, making it the firm’s 10th largest equity holding, a filing showed.
2. The Alphabet investment likelycame from one of his two lieutenants, Todd Combs or Ted Weschler.
3. Though its size suggests itlikely had the blessing of Buffett, who is stepping down as CEO at the end of
this year.
Alphabetshares jumped Monday after WarrenBuffett’s Berkshire Hathaway revealed a new stake inthe Google parent, marking one of the conglomerate’smost significant technology bets in years.
Alphabet shares gained 3.1%, bucking theweakness in most technology shares to start the week.
A quarterly 13F filing showed Berkshireowned roughly $4.3 billion worth of Alphabet as of Sept. 30, making it the firm’s 10th largest equity holding. The move surprised many Buffettwatchers given the billionaire’s decades-longhesitation toward high-growth tech companies. Buffett has always seen Apple,
Berkshire’s largest holding, as a consumer productscompany.
The Alphabet investment likely came fromone of his two lieutenants, Todd Combs or Ted Weschler, who increasingly
influence Berkshire’s $300 billion stock portfolio. Though its size suggests it
likely had the blessing of Buffett, who is stepping down as CEO at the end of
this year. The pair have been responsible for many of Berkshire’s tech-leaning
investments, including a stake in Amazon initiated in 2019.Berkshire still owns $2.2 billion worth of Amazon today.
Alphabet has been one of the stock market’sbiggest winners this year, rising 46% as investors reward its accelerating
artificial intelligence push and rapidly improving cloud profitability. Revenuegrowth from Google Cloud, once a margin drag, has turned into a keyearnings driver.
Changing of the guard?
Bill Stone, Glenview Trust Company’s chiefinvestment officer, said the Alphabet purchase could reflect a broader approach
to technology investments as leadership transitions to the next generation.
“Perhaps the purchase of Alphabet signals awidening of the circle of competence into technology,” Stone said.
Longtime lieutenant Greg Abel is set totake the reins for 95-year-old Buffett in January. The Oracle of Omaha will
remain chairman of the board.
That relative discount, combined withAlphabet’s massive cash flow and dominant market position, may have made the
shares particularly attractive to Buffett’s team.
“We think Berkshire likely finds morecomfort investing in GOOG over other tech plays given the high free cash flow
potential of its core business coupled with an attractive valuation at about
22x 2027 EPS amid a healthy top-line growth trajectory,” Angelo Zino, Alphabet
analyst at CFRA, said in a note to clients.
Buffett has admitted missing Google was oneof his biggest investing mistakes. He had a front-row seat: Geico, Berkshire’s
auto insurance unit, was one of Google’s earliest major advertisers. The
company paid about $10 every time a user clicked one of its search ads in the
early days of online marketing.
“I had seen the product work, and I knewthe kind of margins [they had],” Buffett said in 2018. “I didn’t know enough
about technology to know whether this really was the one that would stop the
competitive race.”