Key Points

As of July 24, Alphabet's two share classes combined represent Berkshire's fifth largest holding.
Buffett must believe that the tech enterprise will earn a satisfactory return on its huge capital expenditures, which are projected to total $200 billion in 2026.
Alphabet shares trade at a very compelling forward price-to-earnings ratio of 22.5.
10 stocks we like better than Alphabet

As of March 31, Berkshire Hathaway (NYSE: BRKB) (NYSE: BRKA) held a mix of Class A and Class C shares in Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). This combined stake is now valued at $28 billion, placing it among the conglomerate's leading positions. The holding includes shares bought during Alphabet's $85 billion capital raise in June.

When Berkshire Hathaway first acquired the "Magnificent Seven" stock in the third quarter last year, many investors saw it as unexpected. The Omaha-based firm had long avoided major technology investments.

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Fresh details from a recent CNBC interview show Warren Buffett himself initiated the Alphabet investment, adding another layer of surprise.

Image source: The Motley Fool.

Buffett is bullish on AI

Berkshire Hathaway's portfolio has long favored financial services, energy, and consumer companies that fit the Oracle of Omaha's expertise. Alphabet now appears to align with that focus as well.

Buffett first noticed Alphabet's operational quality more than ten years ago through GEICO's advertising relationship. It took time before he decided to invest, and the timing reveals his perspective.

"Find businesses that are going to earn high returns on capital for an extended period of time," Buffett noted in the interview. Investors can interpret this as a signal of confidence.

The key question today centers on whether hyperscalers will see sufficient returns from record spending levels. Berkshire Hathaway and Warren Buffett remain optimistic about artificial intelligence.

Specifically, the firm is betting that Alphabet can generate solid returns on its massive capital expenditures, expected to reach $200 billion at the midpoint in 2026. Otherwise, Buffett would not have bought shares.

"We continue to expect our capex to increase significantly in 2027," chief financial officer Anat Ashkenazi said on the Q2 2026 earnings call.

Shares look cheap

Investors closely track Warren Buffett's moves. Berkshire's large Alphabet stake signals strong support for ongoing AI development. An opportunity to acquire shares in the tech leader now appears timely.

It is surprising that a firm with a $3.9 trillion market value can still seem undervalued. Yet Alphabet may fit that description. At present, the AI stock trades at a forward price-to-earnings ratio of 22.5, offering an attractive entry for a high-quality business.

While the market frets over rising AI costs, Buffett does not share those concerns.

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Before you buy stock in Alphabet, consider this:

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.