Berkshire’s Alphabet Bet Has Done Magnificently—Is it Too Late to Follow?

BRK-B -0.31% GOOG -0.93%

Quick Read

• Alphabet trades at 31.6 times trailing P/E. The company leads in AI chips with TPUs and Gemini 3.0.

• CEO Sundar Pichai compared quantum computing today to where AI was five years ago.

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In case you missed it, it was revealed that Warren Buffett's legendary conglomerate Berkshire Hathaway (NYSE:BRK-B) punched its ticket to Alphabet (NASDAQ:GOOG) last quarter. Since the news broke as the 13F filing was unveiled to the world, shares of Alphabet have not looked back.

Oh, the power of the "Warren Buffett premium!"

With Alphabet stock now up close to 19% in a month while steering clear of the vicious November pullback in AI names, it seems like there's a new AI king in town, as Alphabet looks to flirt with a $4 trillion market cap by the year's end.

In a prior piece, I predicted that Alphabet would be worth more than Nvidia (NASDAQ:NVDA) by the end of 2026. And while it's not a hard claim to make, given recent action in their respective share prices, I do think that Nvidia, the GPU king, already has so much dominance and excellence baked in.

Alphabet stock has a "Buffett premium." And while shares are pricier, they're certainly not too expensive

Even after a 15% stumble, I still think there's more than just perfection baked into the share price, especially when you consider its wonderful quarter couldn't save it from the AI sell-off. As the tech market (Nasdaq 100) and the rest of the Magnificent Seven move higher without help from the AI chip giant, questions linger as to whether there's a new leader in town in Alphabet. I think there is. And despite the magnificent performance of Alphabet, I still do not think it's too late to follow Berkshire and company into the name.

Now, I'm not a big follower of the smart money into or out of stocks since the 13F filings have quite a bit of delay. That said, when it comes to Alphabet, I view the name not just as a smart trade but as a generational bet on AI, which still goes for way too cheap, in my humble opinion.

Google's AI leadership warrants a premium

At 31.6 times trailing price-to-earnings (P/E), the AI search giant might be going for a bit of a premium (that's probably attributed to Berkshire's buy) compared to its more recent historical averages. However, I think the premium isn't large enough when you consider Google's momentum in AI chips (with its TPUs) and Gemini 3.0, which has pulled a wide margin ahead of the competition.

Could it be that we all underestimated the genius of CEO Sundar Pichai and company while paying too much attention to the disruptive impact that AI search startups would have on Google Search?

It certainly looks that way. And the latest parabolic move in Alphabet shares, I think, is an upside correction of sorts. Even if Gemini 3.0 and Google TPUs are the two dominant forces in AI by 2027, there are other explosive growth drivers to consider.

Of course, there's Waymo, which has made significant progress of late. But it's not the explosive growth driver that could be the next big thing after AI. As you may have guessed, I speak of the rise of quantum computing and the skin that Google has in that game.

Don't forget about quantum

Recently, Sundar Pichai remarked on the technology and his belief that it might be where AI was five years ago. Now, it's quite unclear when quantum will make the big leap as AI did in late 2022. However, if Sundar Pichai and Jensen Huang, two of the smartest visionaries in tech, think an inflection point is nearing, I would certainly take their word for it.

And while there are several pure-play quantum stocks that have gained traction this year, Alphabet stock might be the best quantum bet of them all. If it can steal the AI show, perhaps it can do the same thing in quantum. With its deep pockets and some exceptional stewardship, perhaps it's still early days to be betting on Alphabet.

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