Why Warren Buffett Is Quietly Increasing His Stake in Alphabet

Warren Buffett will step down as Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) CEO at the end of this year, but he's still approving some big buys and sells for its massive portfolio. In the third quarter of 2025, Berkshire trimmed its stake in Apple, but it took a new stake in Google parent company Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Berkshire bought 17.8 million shares of Alphabet's Class A (voting) shares at an average price of $209 per share for $4.3 billion. That new position is now worth $5.6 billion and accounts for 1.8% of Berkshire's entire portfolio, but it only gives it a 0.3% equity stake in the tech giant.

Image source: The Motley Fool.

Berkshire's investment in Alphabet was surprising for three reasons. First, Buffett famously avoided tech stocks throughout most of his six-decade career. He only started investing in blue-chip tech stocks like Apple and Amazon over the past decade, and some of those initial purchases were made by his portfolio managers.

Second, Berkshire sold many of its top stocks, boosted its cash and short-term Treasury holdings to record levels, and paused its buybacks over the past year. Those moves suggested the S&P 500 (SNPINDEX: ^GSPC), which trades at a historically high 31 times earnings, was getting overheated.

Lastly, Alphabet still faces long-term macro, competitive, and regulatory challenges.

So why did Buffett, with just a few weeks left until his retirement, approve Berkshire's new stake in Alphabet?

Some green shoots are appearing at Alphabet

Earlier this year, Alphabet faced some tough challenges. The weak macro environment throttled its ad sales, its core search engine faced stiff competition from OpenAI's ChatGPT and other generative AI platforms, and the U.S. Department of Justice (DOJ) was pressing it to sell its market-leading Chrome browser and share its precious search data with its industry peers. Google Cloud also ranked a distant third in the cloud infrastructure race behind Amazon Web Services (AWS) and Microsoft Azure, and YouTube was struggling to keep pace with ByteDance's TikTok in the short video market. All those unpredictable headwinds drove investors away from Alphabet's stock.

But this September, a U.S. district court ruled that the DOJ couldn't force Google to sell Chrome. Instead, Google was ordered to halt its exclusive search deals with device makers. That lighter-than-expected penalty brought back the bulls -- and its stock soared.

Another major catalyst was Google Cloud's 34% year-over-year revenue growth in the third quarter of 2025, which marked an acceleration from its 32% growth in the second quarter and 28% growth in the first quarter. It attributed that acceleration to the ongoing AI boom, which is driving more companies to upgrade their cloud infrastructure to handle the latest AI applications.

After a rocky start, Google's generative AI platform Gemini is also gaining momentum as an extension of its core search engine. That steady expansion should widen its moat and help it keep pace with -- or even overtake -- ChatGPT in the chatbot race over the next few years.

As for its core advertising business, the stable growth of its core search and YouTube ads are offsetting the softer growth of its network ads. Over the long term, that business should stabilize as its core services (and Gemini) tether more users to its sprawling data-gathering ecosystem.

Why did Berkshire buy Alphabet?

From 2024 to 2027, analysts expect Alphabet's revenue and earnings per share (EPS) to grow at a CAGR of 13% and 17%, respectively, as its advertising and cloud businesses expand. Its stock still seems reasonably valued (but not cheap) at 28 times next year's earnings.

Buffett hasn't publicly said anything about Berkshire's new stake in Alphabet, but he previously called it a "genie" that was being released from a bottle to transform entire industries. Some investors might see Berkshire's investment in Alphabet as Buffett's stamp of approval for the AI market, but Buffett probably didn't orchestrate that initial purchase. Just as with Berkshire's investment in Amazon, its top portfolio managers -- Todd Combs and Ted Weschler -- likely green-lit its investment in Alphabet.

Buffett might have approved the final investment, but we shouldn't claim the Oracle of Omaha is now fiercely bullish on the bubbly AI sector. Instead, it's more responsible to say that Berkshire recognized the long-term growth potential of Alphabet's advertising, cloud, and AI businesses -- and decided to start a fresh position at a reasonable price.

Leo Sun has positions in Amazon and Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.