What does Warren Buffett like in a stock? You could put a solid business moat high on the list. High returns on invested capital (ROIC) would be up there, too, as would an outstanding management team. And we can't leave out an attractive valuation.

Google parent Alphabet (GOOG 1.15%) (GOOGL 1.01%) checks off all of those boxes and dominates its core search market. It's a strong challenger in others, as well, notably including cloud hosting. Alphabet's ROIC consistently trounces the levels generated by Buffett's own Berkshire Hathaway. The company's CEO Sundar Pichai has an exceptional track record.

Then there's valuation. Alphabet stock has plunged nearly 40% year to date. It has never been this cheap, based on its projected future free cash flow. So why isn't Buffett buying Alphabet stock hand over fist?

Buffett's initial hesitation

There were several reasons why Buffett didn't initially buy what was then Google stock. Most importantly, he didn't think the company's business was within his circle of competence. Buffett has avoided many tech stocks for this very reason.

The legendary investor also wasn't sure about how sustainable Google's moat was. Years ago, it wasn't nearly as clear that Google would be as dominant over the long run in search as it ultimately became. 

These factors undoubtedly made it challenging for Buffett to project Google's earnings and assess its valuation. He wrote to Berkshire Hathaway shareholders in 2013:

We first have to decide whether we can sensibly estimate an earnings range for five years out, or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings -- which is usually the case -- we simply move on to other prospects.

Buffett followed this process with Google years ago. And using his own words, he moved on to other prospects.

Then and now

Does this past reluctance explain Buffett's current decision not to invest in what is now Alphabet? There's certainly an argument to be made that it shouldn't.

Back in 2017, Buffett told CNBC that he "should have had better insight into Google." Berkshire's GEICO insurance was a heavy advertiser on the company's search engine. Buffett admitted that it was "an extraordinary business" that claimed "some aspects of a natural monopoly."

Surely, the Oracle of Omaha understands Alphabet's business much better now than he did in the past. He has also gone along with his two investment managers, Ted Combs and Todd Weschler, in adding several tech stocks to Berkshire's portfolio, including Amazon and Snowflake.

However, it's quite possible that Buffett is still uneasy about projecting Alphabet's future earnings. The company's YouTube business is threatened, to some extent, by rivals such as TikTok. Some maintain that OpenAI's ChatGPT chatbot could be "a Google killer."

Toes in the water, head in the sand?

Buffett does have his toes in the water with Alphabet. Earlier this year, Berkshire initiated a position in Markel, which is sometimes referred to as a "baby Berkshire" because of its similarities with Berkshire Hathaway. And it owns over 3.1 million shares of Alphabet.

But this indirect ownership obviously isn't in the same ballpark as Buffett buying Alphabet shares outright. So why isn't he loading up on the stock?

My view is that it's for the same reasons why he didn't buy the stock years ago. The company is still outside his circle of competence, which makes it hard for him to assess its valuation.

What's more difficult to understand, though, is why Combs and Weschler haven't moved to invest in Alphabet. The company truly does check off a lot of boxes that they, like Buffett, like to see. 

TikTok and ChatGPT have a long way to go to even have a chance at knocking Alphabet off its perch. There's a real chance that TikTok could be banned in the U.S. Alphabet has its own AI chatbot, LaMDA, which some believe is more advanced than ChatGPT.

Although Buffett has his toes in the water with Alphabet, his head (or the heads of his investment managers) could be in the sand. Now appears to be a once-in-a-decade opportunity to buy this exceptional stock.