Warren Buffett’s Empire Just Made a Massive AI Bet Nobody Saw Coming
Warren Buffett may have stepped down as Berkshire Hathaway’s CEO, but he says the Alphabet investment was his idea. That bet has now become quite enormous.
Berkshire Hathaway disclosed on August 14 that it increased its stake in Alphabet Inc. (NASDAQ:GOOGL) by 83% during the second quarter to nearly 106 million shares worth about $37.8 billion. That made Google’s parent Berkshire’s third-largest stock holding, behind only Apple and American Express. The stake also includes a $10 billion private placement completed on June 4, with Alphabet saying the proceeds would support general corporate purposes including capital expenditures to scale AI infrastructure and global compute.
That makes this more than a generic Buffett technology bet. Berkshire put fresh capital directly into one of the most expensive AI infrastructure buildouts on Earth.
Why Buffett May Be Right
Alphabet’s AI spending is already producing extremely visible revenue growth. Second-quarter revenue rose 24% to $119.8 billion, while Google Cloud revenue jumped 82% to $24.8 billion. Cloud operating income more than tripled to $8.8 billion. Search revenue still grew 17%, suggesting AI features have not yet cannibalized the advertising engine financing the buildout.
The valuation also looks less extreme than Alphabet’s $4 trillion-plus market value suggests. GOOGL is trading at roughly 17 times forward earnings, while Morgan Stanley analyst Brian Nowak has called the recent weakness a “tactical buying opportunity” and raised his price target to $415. His bull case rests partly on Google turning custom TPUs and Cloud capacity into a much larger AI earnings engine.
The Bear Case
The uncomfortable bit is how much capital that engine now requires. Alphabet raised its 2026 capital-spending forecast to $195 billion to $205 billion in July. Reuters reported that the company burned $5.9 billion of cash in the second quarter, its first quarterly cash burn on record, even as Cloud growth accelerated.
That is precisely the tension Buffett investors should care about: Alphabet may have one of the best AI businesses in the world, but the economics become much less attractive if keeping its lead consumes years of free cash flow and requires external financing.
Insider Monkey’s Q2 hedge fund data shows 513 hedge funds holding GOOGL as of Q2, up from 471 in Q1. Berkshire is Alphabet’s largest hedge fund holder tracked by Insider Monkey. Alphabet’s Class C shares had only 46.94 million shares sold short on July 31, about 0.91% of float.