Warren Buffett has sent a clear, multi-billion-dollar message about artificial intelligence that investors should not ignore.

Key Points
Berkshire has always considered Alphabet as a potential investment opportunity.
Since Berkshire invested in Alphabet, the company's stock price has risen.
The stock no longer falls into the value stock category.
We prefer these 10 stocks over Alphabet ›
Although Warren Buffett is no longer the CEO of Berkshire Hathaway, investors are still learning about his final moves before stepping down. Berkshire Hathaway operates a massive investment portfolio, and investors typically have to wait 45 days after the end of a quarter, when the company files its 13F form with the SEC, to learn about changes in its portfolio. Therefore, we will know around February 15 what Buffett and Berkshire Hathaway did in his final days before stepping down.

The latest information we have about Berkshire's investments comes from the third quarter. Buffett and Berkshire have always adhered to investing in businesses that are easy to understand and align with value investing principles. Most AI stocks do not fall into these two categories, so the emergence of this new stock may come as a surprise to some investors.

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However, I think this is a brilliant move that aligns with Buffett's investment philosophy. Investors should not ignore this multi-billion-dollar signal, and I believe many should follow Berkshire's lead and invest in Alphabet $Alphabet - C(GOOG.US) $Alphabet(GOOGL.US).

Buffett finally invested in Alphabet.
Buffett has long been a fan of Google, Alphabet's core business. However, in his long investment career, Berkshire Hathaway did not invest in Google until 2025. Buffett and his team (or perhaps other investors more focused on the tech sector) bought nearly 17 million shares of Alphabet in the third quarter. At the current stock price, this Alphabet stake is worth about $6 billion. This accounts for about 1.9% of Berkshire Hathaway's overall portfolio, so it's not a small amount.

I believe Berkshire Hathaway's investment sends a clear message: Alphabet will be a winner in the AI space. At the beginning of 2025, this was not a foregone conclusion, as Alphabet was far behind its peers in the generative AI race. Now, it has caught up with competitors and is emerging as a leader in the field. This proves Berkshire Hathaway's investment decision was correct, but is it too late to buy now?

When Berkshire acquired Alphabet stock, its price was very different from today's.
Since investors don't have real-time information, we must judge whether the moves made by other companies in the third quarter are still wise now. Since then, Alphabet's stock has changed significantly.

Berkshire Hathaway could have bought Alphabet stock as early as July 1 in the third quarter. At that time, Alphabet's stock was around $175, far from today's trading price of $330. By the end of the third quarter, Alphabet's stock began to rise, reaching $243 on September 30.

The stock price fluctuated wildly, and we have no way of knowing when Berkshire Hathaway bought Alphabet stock. The biggest event in the third quarter was the court ruling in Alphabet's monopoly case. Previously, there were concerns that Alphabet's business would be broken up, but the judge only required minor adjustments to Alphabet's business model, essentially leaving it intact. This ruling triggered a wave of gains, and if Buffett bought before the news was announced, his returns would have been maximized.

However, this good news is already fully reflected in Alphabet's stock price, which now trades at a P/E ratio of about 30.
This is very different from Alphabet's forward P/E ratio of less than 20 for most of the third quarter. Therefore, if investors choose to buy the stock now, they will be paying a premium. But I think it's worth it. A forward P/E of 30 has become the standard for large tech companies, so while Alphabet's valuation isn't low, I don't think it's overvalued either. Moreover, Alphabet is a leader in multiple areas and maintains strong growth momentum.

I think all these factors combined make it the right stock to pick, and while you won't get the massive returns that investors who bought alongside Buffett did, I think it can outperform the market.
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