SouthernValue
Public Markets Investor
Berkshire Hathaway's recent bets show impressive mental dexterity, but they are still small dollars for a company its size. It bought Alphabet above its long-term average multiple, at more than twice its price of a year earlier, perhaps the highest multiple Berkshire has paid for an investment that size, apparently betting on good returns from roughly $200B of growing AI capex. It also bought Delta despite Buffett calling airlines a mistake after COVID. x.com x.comÂ
Berkshire Hathaway's bigger Alphabet stake still makes it a poor way to own Alphabet, since the position is only about 2% of assets versus about 6% of the S&P 500. Berkshire grew the stake to over $20B, and Greg Abel called it core at the annual meeting. Otherwise Berkshire is about 40% cash against an index that is about 40% AI, almost a bet against AI and on a crash, and Abel said a crash is needed to deploy the excess capital. x.comÂ
Diversified cash flows in the billions make the AI-buildout basket more appealing than standalone model companies. Many members look reasonably priced and have longer records of delivering returns; Anthropic and OpenAI look much more like gambles at current valuations, though either could appeal at the right price. A possible equal-weight portfolio to revisit in five years includes Amazon, Alphabet, Microsoft, Meta, Oracle and SpaceX. x.com x.comÂ
Alphabet's businesses beyond search are why it will lead the real AI boom. Google Cloud, DeepMind and Waymo broaden its reach, and its $900 million SpaceX investment is now worth $85 billion. Fear emerging as the shares fall is an opportunity; a decline toward the buy zone is welcome, even as Q3 capex has taken a large hit out of free cash flow. x.com x.com x.com x.comÂ
Berkshire Hathaway benefits from a flight to low-beta quality stocks that are not burdening themselves with AI debt. Its shares are up 10% in October, while three of its largest holdings, Apple, Coca-Cola and Chevron, have been surging. Boring pays. x.comÂ
Alphabet's AI buildout is hurting near-term operating profit as capex becomes depreciation. Operating income missed by about 6% and margin fell to about 32% from 34%, while much of the roughly 30% EPS miss came from gains and losses on investments, not Search, YouTube or Cloud. AI remains bullish, but the spending is not good for Google in the short term; the $195-205bn 2026 capex range is unchanged and 2027 capex is expected to rise significantly. Alphabet remains Overweight with a $425 target. … Show more
Alphabet's AI-mode ads could move the needle, giving the stock a tentative upside bias despite search uncertainty. Search supplies $39b of $41b in quarterly segment profit, but its revenue growth slowed to 12% and will likely slow to 10% in Q4. Queries remain healthy; Alphabet says AI queries are mostly additive. Cloud revenue grew 96% year over year. At 18x a slightly above-consensus 2027 GAAP EPS estimate for over 30% operating profit growth, the stock remains a tough call. x.com x.com x.comÂ
Berkshire Hathaway is a better holding than the S&P 500 right now, offering both higher returns and a higher margin of safety. x.com x.comÂ
Berkshire Hathaway's $10B investment in Alphabet's $80B equity raise for AI infrastructure endorses the AI buildout that bears said would fail. By participating, Berkshire is effectively saying the dilution needed to fund the next phase of AI infrastructure won't matter in the long run. The upward momentum should only accelerate from here. x.comÂ
Alphabet is the most complete vehicle for betting on AI, and it is undervalued. x.comÂ
Berkshire Hathaway is effectively a lower-beta version of the S&P 500 unless Greg Abel reinvents the wheel, and that makes it a better buy than the index during selloffs like this one. Its 20-year total return exactly matched the S&P 500's at 694.6%, with milder drawdowns but milder upside in tech-led rallies. Much of its roughly $400B cash pile is insurance float, so less is available for buying stocks, and outside tech nothing big enough is both deep value and growth to be the next Apple. … Show more
Berkshire Hathaway risks another five years of returns decimated by big tech, which is too strong. Greg Abel should study Jensen Huang every day, or it will come at great cost to shareholders. Berkshire is more than an insurance company now, and missing Google and Amazon, which it has acknowledged as mistakes, was bad in the long run, not just the short run. x.com x.com x.comÂ
