This Unstoppable AI Stock Is Up 97% Since Warren Buffett Bought It, and There Could Be More Upside Ahead
Key Points
Alphabet has been on a sustained run since Berkshire Hathaway first bought its shares.
There are several reasons the company's financial results could remain strong for the foreseeable future.
Alphabet doesn't look too expensive at current levels.
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Warren Buffett is no longer the CEO of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB). However, during his last year at the head of the company he spent decades building and leading, the Oracle of Omaha made several eye-catching investment decisions (or perhaps some members of his team did). One of them was to purchase shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) in the third quarter of 2025.
We don't know the exact date when Berkshire Hathaway invested in Alphabet, but if we assume it did so at the midway point of the period, or Aug. 15, the stock is up about 97% since then (picking different dates throughout the third quarter yields very different performances, although all relatively strong). Here's the good news: There are solid reasons to think Alphabet still has plenty of upside.
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Buffett's investing philosophy
Buffett built and led Berkshire Hathaway with a specific investing philosophy in mind. His strategy has been to buy shares in great companies with strong competitive advantages at fair prices, and hold them for as long as possible. Several of the stocks in the conglomerate's portfolio have been there for a long time: Coca-Cola is a notable example. By the time Berkshire Hathaway bought Alphabet, the tech leader had already delivered excellent returns since its 2004 IPO. However, Buffett and his team clearly think the stock can still perform well over the long run, at least at the price they paid. Investors should take this endorsement from one of the best investors who has ever existed seriously.
Image source: The Motley Fool.
The $460 billion tailwind
It's also important to look under the hood of Alphabet's business and decide for ourselves whether it's a stock worth investing in. Let's consider the company's latest financial results. While we shouldn't make too much of a single quarter, several aspects of Alphabet's performance suggest that it has excellent prospects, at least through the medium term. During the period, Alphabet's top-line growth accelerated quarter over quarter, rising from 18% to 22%. The company's cloud segment was arguably the most important reason why. Google Cloud's revenue was $20 billion, up 63% year over year. In the fourth quarter, Google Cloud growth was a comparatively unimpressive 48%.
Further, the company registered a cloud backlog of $460 billion during the period, almost double the level at the end of the fourth quarter. There is accelerating demand for the company's cloud services, largely thanks to the continued adoption of artificial intelligence (AI)-related products. The company's massive backlog -- in light of the fact that Google Cloud generated well under $100 billion in revenue last year -- suggests at least two years of sustained strong demand for its cloud services. It also helps justify Alphabet's massive investments.
The company plans to spend between $180 billion and $190 billion on capex this year, and management said this figure would significantly accelerate in 2027. While some tech leaders are being punished for spending small fortunes on capex to support their AI-related ambitions, Alphabet's strong revenue growth and outstanding backlog suggest the heavy spending is warranted and could unlock even more opportunities.
Is the price still right?
Alphabet's shares are currently trading at 28.2x forward earnings, versus an average of 21.4x for communication services stocks. Is the company overvalued at current levels? Given the tech giant's excellent financial results and wide moat from its brand name, network effects, and switching costs, I view the stock as reasonably valued. It's even more the case when we consider that Alphabet has several other attractive long-term growth opportunities. We can name the company's work in streaming or autonomous vehicles, for instance. So, it is still time to purchase Alphabet's shares after the company's outstanding performance since Buffett and his team first invested in the stock. Alphabet can post strong returns over the long run.
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Prosper Junior Bakiny has positions in Alphabet and Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.
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