Alphabet Stock Has Surged Since Warren Buffett's Berkshire Hathaway Bought a Stake in the Tech Giant. Is It Too Late to Buy?

Shares of Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) have been on a powerful run this year, and the climb accelerated after Berkshire Hathaway disclosed a multibillion-dollar stake on Nov. 14. The filing showed Alphabet as Berkshire's newest large holding, and the stock jumped as investors digested the news. As of this writing, the shares are up sharply in 2025 and now sit near record highs.

Alphabet is best known for its search and advertising business, along with YouTube and a fast-growing cloud computing platform. The company is also one of the most aggressive investors in AI (artificial intelligence), pouring huge sums into data centers and custom chips that power generative AI models. That spending is reshaping Alphabet's financial profile, lifting revenue while also pushing capital expenditures to unprecedented levels.

Berkshire's decision is notable because it suggests that at least someone at the conglomerate endorses Alphabet's business during this period of heavy investing in data centers. But has the stock's recent run-up already priced its upside in?

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Berkshire's investment endorses AI investments

Berkshire's latest Form 13F showed it owned about 17.9 million Alphabet shares as of Sept. 30, a position worth about $5 billion today. This makes Alphabet one of Berkshire's larger U.S. equity holdings. While the filing does not reveal the exact purchase prices, Alphabet traded well below today's level during Q3, so investors can't get the same deal for the stock that Berkshire did.

Still, Alphabet has given us more data since Berkshire purchased its shares of the company, as third-quarter results were reported on Oct. 29. So, even though investors who buy now have to pay a higher price, they do have more information about the company's accelerated momentum since its last earnings report -- information that helps justify paying a higher price.

Alphabet's third-quarter revenue increased 16% year over year to $102.3 billion, up from 14% growth in Q2. Catalysts for the quarter were broad-based. Google Services revenue, which includes search, YouTube, and subscriptions, grew 14% to $87.1 billion, while Google Cloud revenue jumped 34% to $15.2 billion.

Third-quarter profitability was particularly impressive. Net income climbed 33% to about $35 billion, and earnings per share increased 35% to $2.87, helped by strong operating leverage and sizable gains in its investment portfolio.

"This was a terrific quarter for Alphabet, driven by double-digit growth across every major part of our business," said Alphabet CEO Sundar Pichai in the company's third-quarter earnings call. "We are seeing AI now driving real business results across the company."

Berkshire's purchase gives the conglomerate a direct way to participate in this AI-driven growth.

Is the stock a buy?

Despite the big move in the stock, Alphabet's valuation still looks attractive relative to its growth profile. Even after rising more than 50% year to date as of this writing, the stock's price-to-earnings ratio is just 28.

Looking ahead, management expects AI to continue driving growth -- and its aggressive investments show that management is putting its money where its mouth is. After raising its 2025 capital expenditure outlook to about $85 billion earlier this year, management lifted that range again in the third quarter to between $91 billion and $93 billion, largely for AI-focused technical infrastructure.

Even with growing capital expenditures, Alphabet continues to generate substantial cash flow. Specifically, the company generated $24.5 billion of free cash flow in Q3 and $73.6 billion over the prior 12 reported months. And not only does Alphabet generate substantial cash, it has a lot on its balance sheet. Alphabet ended the period with $98.5 billion in cash and marketable securities.

At the same time, this investment cycle creates a real risk for shareholders. Capital expenditures of around $90 billion in a single year leave little margin for error if AI infrastructure demand slows or if competition intensifies. And depreciation from this wave of investment will weigh on reported margins for years.

Ultimately, Alphabet remains attractive for investors who are comfortable with the company's substantial AI spending -- something that is both a risk and an opportunity. Additionally, Berkshire's move offers a fresh reminder that the company has matured into exactly the kind of cash-generating, competitively advantaged business that fits a long-term, value-focused portfolio.

Daniel Sparks and his clients have 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.