2 Reasons to Buy Warren Buffett's Favorite Artificial Intelligence (AI) Stock and Never Sell

Over the last few months, it has become apparent that Google parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is Warren Buffett's favorite artificial intelligence (AI) stock. Although he retired from his role as CEO of Berkshire Hathaway at the end of 2025, he was the one who initiated its initial investment in the tech giant -- a stake that has grown into its third-largest equity holding under his successor, Greg Abel.

Buffett has repeatedly stated that forever is his favorite holding period for an investment, and even now, he appears to retain his talent for finding such stocks. Thus, Berkshire's newest megastock is likely a good fit for individual portfolios as well, and two reasons explain why.

Warren Buffett: Image source: The Motley Fool.

Alphabet's positioning in AI

For all of the hype about artificial intelligence (AI), Alphabet continues to earn most of its revenue from digital advertising. It began applying AI to its applications back in 2001. However, it has likely drawn more attention with Google Gemini, which seems to have answered the competitive threats from ChatGPT and Claude.

Moreover, it has leveraged the technology to drive growth at Google Cloud, the platform through which it provides foundational models, developer tools, and infrastructure for AI, including support for Google Gemini. So successful is its approach that Google Cloud grew its revenue by 82% year over year in the second quarter of 2026.

The Google parent has also leveraged AI through its autonomous driving subsidiary, Waymo. Its Waymo Driver platform utilizes AI as the foundation for autonomous driving, applying it to examine vehicles' surroundings, anticipate human actions, and navigate streets safely.

These platforms allow Alphabet to benefit from AI from multiple sources. This makes it more likely that it will remain a market leader in the technology.

Alphabet's financials

Another attribute of Alphabet that likely attracted Buffett's attention was its financials. This goes far beyond its low valuation, though he likely appreciates the ability to buy the communications stock at a price-to-earnings (P/E) ratio of 17.

He probably also likes that the company holds more than $242 billion in liquidity, up from $127 billion one year ago.

Admittedly, the liquidity factor touches on an aspect of Alphabet that would probably make Buffett uncomfortable under most circumstances -- its capital expenditures. The company has said it intends to spend between $195 billion and $205 billion on capex this year alone, largely on the build-out of its AI data center infrastructure. Consequently, it increased its long-term debt to around $123 billion, far above the $46.5 billion in long-term debt it had on the balance sheet at the end of June 2025.

Still, this spending is likely a major reason for Google Cloud's revenue growth and the company's 24% overall revenue increase. Moreover, it can likely afford this investment. Alphabet generated over $53 billion in free cash flow over the past four reported quarters. (That metric excludes capex spending.) Buffett often calls cash flows "owner earnings." This may have been his justification for overlooking Alphabet's massive capex spending, and could give retail investors a green light to invest as he does.

Investing in Alphabet

All things considered, Alphabet seems to be Warren Buffett's favorite AI stock. The Google parent has successfully leveraged its AI prowess across platforms such as cloud computing and autonomous driving. Furthermore, it offers a reasonable valuation, liquidity, and strong free cash flows.

Given Alphabet's potential for success and strong financials, this is one time that it might pay for average investors to follow in Buffett's footsteps.

Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.