Warren Buffett and Greg Abel Have Been Loading Up on This Top Artificial Intelligence (AI) Stock That's Trading at a Bargain-Basement Price

Warren Buffett delighted the market when Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) announced a new stake in Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) in the 2025 third quarter, and Greg Abel added to the position when he tripled it in the 2026 first quarter, his first as chief executive officer. Alphabet represents 7.8% of Berkshire's equity portfolio, making it one of the largest positions.

Although Alphabet reported fantastic growth in the 2026 second quarter, the stock plunged after the earnings report last week. The market was not pleased with management's plans to devote as much as $205 billion to capital expenditures for the full year, which already sent free cash flow into negative territory in the first quarter for the first time in more than a decade.

But as the stock falls, it's trading at a bargain-basement price. Here's why it looks like a great deal rather than a value trap.

Stepping it up for AI

Hyperscalers like Alphabet continue to view artificial intelligence (AI) as a huge opportunity, and they're spending to capitalize on it and keep up with the competition. JPMorgan Chase CEO Jamie Dimon thinks totaL spending is going to reach $700 billion this year, up from $400 billion last year, and Alphabet is spearheading the charge with its investments.

Image source: Google.

The second-quarter results were outstanding, and they demonstrated an acceleration from first-quarter results. Revenue increased 24% year over year, with growth across the company. The standout, though, was in the cloud business, where the AI magic happens. Cloud revenue increased 82% year over year, and Alphabet may have made progress in closing the gap with Amazon (NASDAQ: AMZN) Web Services and Microsoft, which are both ahead of it in global market share.

"Our AI investments are redefining what's possible across every part of our business," CEO Sundar Pichai said. The company is experiencing rapid growth in the AI business, and it's happening everywhere across the enterprise, from search users going deeper with AI mode to 90% of Fortune 100 clients engaging with Gemini Enterprise.

More than 9 million developers are creating apps with Gemini large-language models, and the latest Gemma open model has been downloaded 300 million times since going live in April. The Gemini app now has more than 950 million monthly active users.

The broad exposure to the global stage through its 90% dominance in search creates tremendous opportunities for Alphabet, but the growth happens at the enterprise level, since large business clients spend more money on development. Client commitments accelerated to 50% growth in the second quarter, and Alphabet is investing to meet demand as its supply is constrained.

Management was very clear that it expects capex to increase "significantly" in 2027, and that free cash flow will be pressured while the company invests in the technical infrastructure. It expects this approach to create the foundation for future growth and attractive returns.

Bargain or value trap?

It's hard for investors to know what to make of this. The market is clearly seeing this development in a negative light, but so far, Alphabet continues to thrive. Management expects the spending to pay off in spades, and the company has a strong track record of building dominant, profitable businesses.

Is this needless market worry? If so, investors who scoop up shares will be well rewarded down the line. In fact, this may be just the kind of opportunity Buffett often talks about, the kind of opportunity that happens rarely but can lead to outstanding gains.

At the current price, Alphabet stock trades at 16 times trailing-12-month earnings, which is its lowest P/E ratio ever.

GOOG PE Ratio data by YCharts

The bigger question, I think, is how quickly the stock will recover. The market is negative about Alphabet right now, and investors who jump now might have to wait for some time before sentiment turns positive. However, with the market fearful, it could be just the time to be greedy.