Former Berkshire Hathaway CEO Warren Buffett Just Said 3 Words That Could Add Some Serious Fuel to the AI Trade
Key Points
While Buffett has never been afraid to venture into new sectors, he is not viewed as an artificial intelligence bull.
Berkshire Hathaway has been conservative in its equities portfolio in recent years.
The conglomerate has gotten more involved in the AI trade this year.
Former Berkshire Hathaway CEO Warren Buffett may no longer run the company he helped build into one of the world's largest conglomerates over more than six decades. But he will still occasionally appear on CNBC to discuss the market and Berkshire's business, which he remains involved in as executive chairman. Though he's now 95 years old, the market is always eager to hear any insights offered by the Oracle of Omaha, widely considered the greatest investor of all time.
In his most recent interview on CNBC, Buffett said three words that could add some serious fuel to the artificial intelligence trade.
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Who initiated Berkshire's Alphabet position?
Greg Abel began his tenure as Berkshire Hathaway CEO at the start of this year, and didn't waste much time setting his mark on things. One notable move he made was to significantly increase the conglomerate's position in Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL).
In the first quarter, Berkshire added over $10 billion to its Alphabet position. Then the company bought another $10 billion through a private placement. Across both Class A and Class C shares, Alphabet is now the fourth-largest position in Berkshire's massive equity portfolio.
Most investors, myself included, assumed Abel had chosen Alphabet as his horse, much as Buffett had made the decisions to load up on Apple over the past decade.
When Berkshire initiated its Alphabet position in 2025, when Buffett was still CEO, but many had assumed the decision was made by another Berkshire investment manager, given that Buffett and Berkshire have been very conservative in recent years.
Buffett has also hinted on numerous occasions about the market being overvalued. But during his recent CNBC interview, when asked about Berkshire's Alphabet position, he revealed, "I initiated it." He added that he regrets not buying the stock earlier.
Alphabet, of course, is making enormous bets on AI. An investment in its stock is inherently an investment in the technology.
While Alphabet is by no means the highest-valued AI stock in the market, and the company has many other successful businesses, Buffett saying he initiated this investment must mean he has some belief in the future of AI.
Still, he referred to his core investing principles when explaining why he made that move.
"The trick in life is to find -- I mean investing -- is to find businesses that are going to earn high returns on capital for an extended period of time," Buffett said.
That's exactly what Alphabet has done, which isn't surprising given the company's success. By my calculations, Alphabet earned returns on equity (net income/shareholder equity) of roughly 31% and 32% in 2024 and 2025, respectively.
I also estimate that it earned returns on invested capital (ROIC) of roughly 39% and 32% in 2024 and 2025, respectively, assuming invested capital is equity plus net debt.
These are quite strong results, and if Alphabet continues to perform consistently, the stock should be a strong winner from here.
Buffett likes Alphabet but has concerns about AI
Buffett suggested that he has confidence in Alphabet due to its strong track record. It operates an array of businesses -- cloud, search, content, and autonomous driving among them -- that all had tremendous potential before the AI revolution.
However, Buffett did say he has concerns about where the broader AI sector is heading.
"The real question with Google and all of its competitors now, because they're all laying out hundreds of billions, and that's real money," Buffett said, referring to the capital expenditures that hyperscalers are pouring into building more AI data center infrastructure. "That's the game they're playing now. They weren't playing that game with computer software."
Buffett is certainly not the only one with these concerns, and it's evident with Alphabet. ROIC declined from 39% in 2024 to 32% in 2025, largely because Alphabet took on significant debt to fund capex in 2025.
The question is, can Alphabet generate significant ROIC from these investments down the line? Only time will tell.
Ultimately, Buffett's support for Alphabet is certainly good news for the AI trade. However, this doesn't mean he has thrown his full support behind it.
My guess is Buffett and Abel see a safety buffer built into Alphabet, given how many other strong tech businesses it operates. A significant setback to the AI trend would not be good for Alphabet, but the tech giant would likely be able to navigate it.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
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