Warren Buffett may be retired from his CEO duties at Berkshire Hathaway (BRKA +0.27%) (BRKB +0.26%), but his influence lives on.
This showed up during Berkshire's latest round of stock buys in the second quarter, which were made available to the public through a Form 13-F. The document revealed that Buffett's successor, Greg Abel, kept buying one of Buffett's favorite stocks: Alphabet (GOOG +1.53%) (GOOGL +1.74%).
Alphabet is a great stock pick and one of the companies that Buffett has said he wishes he had bought sooner. He initiated a position in the third quarter of 2025, right before he retired at the end of the year. But Alphabet is a good enough investment that Abel has added more to Berkshire's portfolio, and I think investors should follow suit.
Image source: The Motley Fool.
Alphabet is performing well in the AI arms race
During Q2, Berkshire Hathaway dramatically increased its holdings in Alphabet. It bought about 48 million shares of Alphabet during Q2, which equates to about $16.3 billion at today's prices. That makes Alphabet Berkshire's third-largest holding when both share classes are combined, and underscores that Berkshire believes Alphabet is set to be a fantastic investment for the foreseeable future.
After seeing Alphabet's Q2 results, I think this is a great call.
Alphabet's growth rate is accelerating thanks to the significant investment it's making in AI infrastructure. Alphabet is spending hundreds of billions of dollars on data centers to build out its AI computing footprint, but it's not using all of that internally. Instead, it's renting some of its capacity to other companies via Google Cloud, its cloud computing platform.
In Q2, Google Cloud's revenue increased an impressive 82% year over year to $24.8 billion and generated $8.8 billion in operating income. Google Cloud as a stand-alone business could potentially receive a trillion-dollar valuation, but it's just one part of the Alphabet machine.
NASDAQ: GOOGL
Key Data Points
Alphabet's other businesses also did well, and the company's overall revenue soared 24% year over year. Despite its incredible success, Alphabet stock hasn't gotten too expensive.
Thanks to one-time effects from gains on investments, Alphabet's price-to-earnings ratio is out of whack. Instead, I'll value the company based on next year's earnings.
GOOG PE Ratio (Forward 1y) data by YCharts
At about 23 times next year's earnings, Alphabet isn't the cheapest stock in the world, but it's also not terribly overvalued. I think Alphabet is in a great spot to continue growing rapidly as more AI computing capacity comes online, and should easily outperform the market over the next few years as the AI arms race heats up.
