AI has turned out to be the most talked-about subject in the stock market, sometimes causing the markets to hit record highs and at other times, they hit rock bottom. While Wall Street has been running at full speed towards anything with the label “AI”, Warren Buffett has been acting just like he always does, which is slowly and calmly moving in the opposite direction with cash in hand, and eyebrows raised.
Berkshire Hathaway was mostly a sideline spectator during the AI boom, with cutting positions, and gathering cash instead of getting momentum. But last quarter, this investor eventually made a significant move, where he reduced his stake in Apple and bought a huge stake in another AI giant. The change provides a glimpse of how Buffett perceives the current market and where he sees lasting value.
The Long Run of Apple Meets a Good Exit
For Berkshire, Apple has been an investment that produced the highest returns in the last decade. What started as a surprising step into technology for Berkshire in 2016 eventually came to be the biggest holding of the company.
It was all due to the loyalty of customers, along with the powerful ecosystem of Apple, and the cash generation that Apple has. Apple has always been more of a consumer must have in Buffett’s playbook rather than a risky investment.
However, Berkshire reduced its stake in Apple significantly over the past year, cutting it by about 73% from the end of 2023. While some have suggested the company’s slow AI rollout as a reason, but the situation is actually much less dramatic.
Apple’s stock, along with the rest of the market, jumped roughly 60% in a relatively short period, which is precisely the kind of environment that Buffett prefers for booking profits and not for extending his hold even further. Clearly, this is not about losing faith, it is simply profit taking in a frothy market.
Billionaires Quietly Bet on Alphabet
Alphabet has largely stayed out of the public eye during the past few years, while investors were busy with AI superstars like Nvidia and Palantir. Also, the sentiment might have been weighed down by the early concerns that large language models would severely affect Google Search’s operations.
However, the tech giant has consistently worked on its AI strategy without drawing much attention to itself. The company’s strategy may now reap rewards. Among the big name investors who have been building up their positions in Alphabet shares during the third quarter are Stanley Druckenmiller, Ken Griffin, Israel Englander, and Warren Buffett.
The reason for this is the comprehensive nature of Alphabet’s full-stack AI strategy. Currently, Gemini has become an essential part of Google Search, Android, and productivity applications. Also, the firm’s custom Tensor Processing Units offer an economical substitute for externally sourced AI chips in its cloud unit, which allows it to stay competitive in the market.
Furthermore, Alphabet has strongly taken steps to obtain the necessary groundwork for AI growth, the most recent being a $4.7 billion transaction to buy clean-energy firm Intersect, which then would power data center expansion. The method is indicative of the company’s long-term thinking rather than the short-term hype.
Is Alphabet Still Worth Buying?
The stock of Alphabet has a forward price-to-earnings ratio of about 29, which indicates that the period of very low pricing is probably over. But then, high prices are not the only reason to avoid investing in a company with this story.
Very few firms can offer the combination of Alphabet’s distribution, in-house hardware, AI models, and strength in finances.
By incorporating AI software, chips, cloud infrastructure, and energy supply across the verticals, Alphabet is positioning itself as a resilient contender in the next phase of the AI cycle. For some investors, it is increasingly looking like the kind of business that Buffett likes, which is one that is built to grow silently while the others are focused on the news.
Bottom Line
The transition of Berkshire from Apple to Alphabet does not mean the rejection of technology, it is a sort of readjustment. It seems that Buffett is switching capital from a stock that has given amazing returns already to one that still offers long-term growth at a reasonable price.
In a market that is obsessed with speed, Berkshire is once again picking patience, and is reminding investors that the most intelligent AI trade can sometimes be the one which does not attract attention at all.
