More than twenty years after Google’s founders said Warren Buffett’s writings helped shape their approach to investors, the billionaire has made a major investment in the company. Larry Page and Sergey Brin had titled their letter in Google’s IPO prospectus as “An owner’s manual for Google’s shareholders” and added a footnote saying the document was “inspired by Warren Buffett’s essays in his annual reports and his ‘An Owner’s Manual’ to Berkshire Hathaway shareholders.”
Now the admiration appears to run both ways. Berkshire Hathaway has disclosed that it owns about four point three billion dollars worth of shares in Google parent Alphabet as of the end of the third quarter. This makes the stake Berkshire’s tenth largest equity holding and one of its most significant technology investments in recent years. The news pushed Alphabet’s stock up three percent on Monday.
The move stands out because Berkshire has long been cautious about buying into fast growing technology companies. It is also the first known time the firm has bought into Google. Buffett, who is ninety five, will step down as chief executive at the end of this year, with Greg Abel set to take over.
Buffett previously said in 2017 that he regretted not purchasing Google shares earlier when Berkshire’s insurance business was paying large advertising fees to the company. He also said he had missed out on Amazon, although Berkshire eventually bought into the e commerce firm in 2019 and still owns two point two billion dollars of its shares.
Alphabet’s shares have risen fifty percent this year and are close to their record high. The company recently reported its first quarter with revenue above one hundred billion dollars, driven by strong growth in its cloud business, which includes its artificial intelligence services. The cloud unit has a one hundred fifty five billion dollar backlog and a new line of chips that helps it stand out among AI companies.
Alphabet’s valuation is lower than many other large companies focused on AI. The stock trades at about twenty six times next year’s earnings, compared with other major technology players.
Page and Brin cited Buffett several times in the IPO prospectus. They warned investors that quarterly numbers may not always look smooth, saying that “we will not ‘smooth’ quarterly or annual results”. They also said they chose a dual class share structure to protect long term decision making and pointed to other companies that had adopted similar models to maintain focus despite short term market pressures.
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