Berkshire Hathaway Outperformed the S&P 500 Over a 60-Year Period Under Warren Buffett. Here's the Stock That Could Help Continue the Streak Under Greg Abel.
Key Points
Alphabet, a top-three holding, could become an important driver of Berkshire Hathaway’s returns.
The internet giant, which competes across the AI industry, gives Greg Abel exposure to a hyperscaler.
With $359 billion in cash on its balance sheet, Berkshire faces an uphill battle to deploy that capital.
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Warren Buffett's track record running Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) is hard to top. From 1965 through the end of 2025, the stock delivered a phenomenal annualized return of 19.7%. The S&P 500 index was far behind, with a yearly total return that averaged 10.5% during that time.
Buffett's strategy focused on buying high-quality businesses at reasonable valuations. And the real money was made in holding these positions indefinitely, letting compounding do the work.
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The Oracle of Omaha is no longer the CEO. Greg Abel, previously vice chairman of non-insurance operations, is now in the driver's seat. There should be no issue keeping the conglomerate's culture alive. But can the new CEO continue Berkshire's incredible streak of outperformance?
Here's the stock that could help.
Berkshire CEO Greg Abel. Image source: Getty Images.
The conglomerate is backing an AI front-runner
In the third quarter of 2025, Berkshire made headlines when it announced a stake in Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). After adding to the position, the internet giant, combining Class A and Class C shares, makes up the Omaha company's third largest holding. Even more surprising is the fact that Buffett said he initiated the stake last year.
Although the Alphabet position represents just 3.4% of Berkshire's entire market capitalization, it could help the conglomerate's shares outperform should the leadership team continue to add more capital to the stake. Alphabet shares have skyrocketed 49% in the past 12 months (as of Oct. 13). Even so, they trade at a compelling forward price-to-earnings ratio of 22.8.
Buffett ended his run as CEO by showing the world just how much his circle of competence has evolved. The tech sector was previously considered off-limits by him, since he believed it was extremely difficult to assess the durability of companies' competitive advantages.
The Alphabet investment is a vote of confidence that its digital advertising, streaming video, and cloud computing operations have a bright future. And it's a bullish signal about the business' artificial intelligence (AI) strategy.
Alphabet touches nearly every layer of the AI industry -- from research and model development to chips and cloud services. The company also employs its AI capabilities for advertisers and its app users to further improve their experiences. There are very few businesses structured to gain financially from AI in such a comprehensive manner.
Uncertainty at a huge scale
After Buffett's lucrative track record, it's almost impossible for anyone to fill his shoes. Abel certainly seems like the right man for the job, but he faces an uphill battle trying to keep the streak of outperformance alive.
Berkshire's huge scale is a headwind that will get in the way of posting strong returns. Over the past decade, its shares have climbed 260%, lagging the overall market. Bigger isn't better.
And the company has a huge cash pile of $359 billion. Unless there are sizable opportunities to take advantage of, this will be a drag on Berkshire's share-price performance. Cash doesn't possess the return potential that great businesses do.
Alphabet also comes with heightened risk right now, especially compared to its capital-light history. It's in the middle of a spending spree, with capital expenditures set to total $200 billion in 2026 before rising meaningfully next year.
Free cash flow turned negative in the second quarter, marking a new era for the company as it invests aggressively in AI-related infrastructure. From a financial perspective, the uncertainty is high; no one knows how the AI boom will play out.
In the past six decades, Berkshire Hathaway has built tremendous wealth for shareholders under the leadership of Warren Buffett. With Greg Abel as CEO, Alphabet can help grow the conglomerate's intrinsic value. However, investors hoping for the outperformance to continue might want to temper their expectations.
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Neil Patel 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.
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