Berkshire Hathaway (BRKA -0.04%) (BRKB +0.11%) and artificial intelligence (AI) may not seem like an investment duo that would naturally go hand in hand. The conglomerate has long focused on more traditional, less technological businesses. Still, given how much focus there has been on AI among nearly every company in recent years, this association was unavoidable. The question is no longer if you're an AI investor, but what kind of AI investor you are.
So while Berkshire Hathaway may not be rushing headlong to play the AI megatrend, it clearly believes in what Alphabet (GOOG +0.21%) (GOOGL +0.64%) is doing, because it has massively increased its stake in one of the most AI-first companies on the market. Based on the stock's valuation, I think it would be a good idea for investors to follow suit and scoop up shares now.
Image source: Getty Images.
Alphabet is now Berkshire's third-largest position
The most recent information we have regarding Berkshire Hathaway's investment activities is its latest 13F filing, which details its portfolio holdings as of June 30. That data is a bit outdated, but the conglomerate has historically been a long-term investor, so when it makes a purchase, it's usually setting up for a multiyear holding period.
Furthermore, the price tag you can buy Alphabet stock at now is lower than it was during two-thirds of Q2, as the stock rose above $340 per share after the company reported its Q1 results in late April, and stayed above that mark through the end of the quarter. So now may not be the worst time to invest in Alphabet, compared with Berkshire's previous buys.
NYSE: BRKB
Key Data Points
During Q2, Berkshire bought more than 48 million shares across Alphabet's two share classes, and the combined position now makes up about 12.6% of its equity portfolio. It's Berkshire's third-largest stock position, denoting extreme confidence in the tech giant.
While legendary Warren Buffett is no longer in the corner suite, he initiated its first Alphabet buy before his tenure as Berkshire Hathaway's CEO ended. This week, he announced he was also stepping down as its chairman, and shifting to the role of chairman emeritus. However, current management is continuing his legacy, and its recent moves show great confidence in Alphabet. And it's easy to understand why.
Alphabet is benefiting from AI in many ways
Alphabet isn't placing all of its AI bets on one pathway. Instead, it's casting a wide net.
First and foremost, Alphabet's business was built on the Google Search engine, and by integrating AI overviews into its search results, it became an easy gateway to AI for users. The vast majority of the population will first encounter generative AI through this feature, which funnels them into the Google ecosystem.
NASDAQ: GOOGL
Key Data Points
Alphabet's large language model families, led by Gemini, are also among the top-performing AI models and offer premium options that users can subscribe to, generating more revenue for Alphabet.
If Alphabet's models get outperformed by rival offerings, it is also a sizable investor in Anthropic, which develops the Claude family of AI models. Anthropic has emerged as one of the top options as well, and is on course to go public in the near future. The $2 trillion valuation that its leaders are targeting would provide a huge payday for Alphabet.
Lastly, Alphabet also has Google Cloud, an infrastructure platform that handles workloads for numerous AI firms. It's leasing out a vast amount of computing power to clients, and given that its capacity is insufficient to meet current demand, this segment will continue to grow for a long time as more and more AI compute comes online.
Alphabet is set to benefit from AI in multiple ways. While not everything it does will ultimately be a winning solution, if it gets the majority of its bets right, it will be a major winner.
The major stake that Berkshire Hathaway has taken in it can be read as a major vote of confidence, and I think retail investors can comfortably follow suit and invest in Alphabet right now.
