Warren Buffett Bought This New Dow Jones Stock Last Year and His Successor Recently Increased the Position by 200%. Is It Still a Buy?

Warren Buffett has done a fantastic job over six decades of selecting winning stocks -- during that time period, this skill helped Berkshire Hathaway outperform the S&P 500. Buffett doesn't buy a stock to get in on short-term momentum but instead commits to players for a number of years. And this long-term strategy clearly has worked.

Buffett retired from his chief executive officer position at the end of the year, though he remains active at Berkshire Hathaway as chairman. And during his last year leading investment decisions, he made a noteworthy move. Buffett made a surprising stock pick, as he chose a player that operates in an industry where he's not heavily present: technology.

And in the first quarter of this year, Buffett's successor, Greg Abel, reinforced the bet on this recent Buffett selection by increasing the position by 200%. Is this stock, which recently entered the Dow Jones Industrial Average, still a buy? Let's find out.

Image source: The Motley Fool.

Warren Buffett investing

First, a quick word on Buffett's investing philosophy in order to fully understand the reasoning behind this recent purchase. Since Buffett aims to invest for the long term, he's particularly keen on buying shares of quality companies -- he's not interested in quickly buying and selling a mediocre but popular stock to make a fast profit. The billionaire favors companies with a significant moat, or competitive advantage, and aims to get in on these players at reasonable valuation levels.

All of this explains Buffett's decision to buy Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). You may come into contact with this company on a daily basis through a very routine habit: searching for something on the internet. Alphabet is the owner of Google Search, which has steadily held more than 90% of the search market for years. Google is such a leader that it's even entered our vocabulary, as when asked a question, we might reply "Google it.

It's proven very difficult for other search players to even get close to Alphabet's search market share, showing that this company has a fantastic moat. And Alphabet's revenue happens to be very strongly linked to this moat. Most of the tech giant's revenue comes from advertising across its Google platform.

Recent buying opportunities

Meanwhile, Alphabet stock has offered investors such as Buffett buying opportunities over the past year. Buffett initially bought the shares in the third quarter of last year, and the chart below suggests he got in on the stock for less than 20x forward earnings estimates -- a steal considering the company's long track record of growth and market leadership.

GOOG PE Ratio (Forward) data by YCharts

Abel, who increased the holding by about 200% and opened a position in Alphabet class C shares, bought during the first quarter of this year -- the purchase was at a higher valuation, but still a bargain level.

GOOG PE Ratio (Forward) data by YCharts

Now, let's consider whether this tech giant is still a buy. The stock today trades at a pricier level, at 24x forward earnings estimates, but remains reasonable.

AI is driving growth

Alphabet's search business is going strong, and on top of this, the company's Google Cloud and strengths in artificial intelligence (AI) are supercharging growth. Google Cloud offers AI products and services, including its Gemini large language model, to customers. And Alphabet also applies Gemini to its own businesses, including Google Search.

In the latest quarter, the company said AI drove queries to a record high. This is key because the more people favor Google Search, the more advertisers will spend there. In the quarter, Google Cloud saw revenue climb more than 60%, and backlog almost doubled from the previous quarter to about $460 billion.

Buffett and Abel clearly like Alphabet for its solid moat and were happy to get in on this stock for a low price. Now, the good news for investors is that Alphabet's valuation remains reasonable, and the growth story is a strong long-term one. And this means it isn't too late to get in on this recent Warren Buffett buy.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.