Alphabet: Buffett's Bet on Its Next Phase of Growth

Alphabet (NASDAQ: GOOGL) has gone from laggard to leader in the second half of the year, a shift that hasn’t gone unnoticed on Wall Street. After trailing the broader market and its Magnificent Seven peers earlier in the year, Alphabet has now flipped the script. Shares are up an impressive 41% this quarter alone, outpacing nearly every mega-cap tech stock.

And that relative strength just received a massive vote of confidence. Berkshire Hathaway (NYSE: BRK.B) revealed a 17.8 million share stake in Alphabet’s Class A stock during the third quarter, an investment worth nearly $5 billion at Monday’s close. The news surprised many investors for several reasons, and anytime Warren Buffett breaks character, it raises one big question: Should investors follow suit?

Why Berkshire’s Move Turned Heads

Buffett’s investment in Alphabet puzzled even seasoned market watchers. Historically, Berkshire has shown reluctance toward high-growth tech names, preferring undervalued companies with long track records and predictable cash flows. The last time Buffett made a major move into a Magnificent Seven stock was Apple (NASDAQ: AAPL) back in 2016, a decision that turned out to be one of the most profitable in Berkshire’s history. Apple remains Berkshire’s largest equity holding, even after trimming, at over $60 billion.

Alphabet, however, isn’t unloved, overlooked, or beaten down. It’s quite the opposite. The stock has gained 71% over the past six months and is up 50% year-to-date. It’s unusual to see Berkshire buy into a name with that kind of momentum, especially one that was trading at a forward P/E near 18 just several months ago. But Buffett has long admired Alphabet. In 2017, he admitted he regretted not buying the stock much earlier, especially after watching GEICO pay substantial advertising fees to Google for years.

So what changed? Simply put, Alphabet’s fundamentals are now too strong, too broad, and too durable to ignore.

Alphabet’s Dominance Is Only Getting Stronger

Alphabet’s latest quarter put its competitive strength on full display. The company delivered its first-ever quarter of $100 billion in revenue, generating $102.35 billion, exceeding expectations of $99.9 billion. Net income climbed to $34.97 billion from $26.3 billion a year earlier, while EPS beat estimates by 58 cents, underscoring how quickly its AI-first strategy is translating into financial momentum.

Search and YouTube both posted healthy gains, with Search revenue up 15% year-over-year to $56.56 billion, and YouTube contributing $10.26 billion. Advertising revenue topped $74 billion, reinforcing the resilience of digital ad demand even after a choppy first half of the year.

Google Cloud remains the standout growth driver. Revenue rose 35% year-over-year to $15.15 billion, and the backlog surged to $155 billion as AI-related demand accelerates. Management noted that Alphabet signed more billion-dollar cloud deals this year than in the previous two years combined.

With the company raising its 2025 capital expenditure target to as high as $93 billion, much of it aimed at data centers, Alphabet is clearly preparing for the next major cycle of global AI adoption. And while modest, its 0.29% dividend adds another layer of appeal for long-term investors.

Sentiment, Valuation, and the Road Ahead

Wall Street’s tone has grown increasingly bullish. Analysts maintain a Moderate Buy rating, with nearly 7% upside based on consensus price targets. Institutional appetite has surged as well, with inflows exceeding $140 billion over the past 12 months, compared with $74 billion in outflows.

And despite its second-half rally, Alphabet remains reasonably priced. Its P/E ratio of 28 still sits below the S&P 500 average of 30 and is cheaper than every other Magnificent Seven stock except Meta Platforms (NASDAQ: META).

Alphabet is doubling down because demand isn’t slowing; it’s accelerating.

With broad-based growth, rapidly scaling AI and cloud businesses, and now the backing of Warren Buffett, Alphabet’s next chapter appears to be just getting started.

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