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Warren Buffett has taken a graceful exit, but his investments continue to dominate the industry. Berkshire Hathaway (NYSE:BRK-B) had $267 billion invested at the end of the third quarter. The 13F filings show the moves Buffett took to ensure that his investments keep growing. While major trades weren’t made in the third quarter, there are a few notable ones worth exploring. Warren Buffett sold tech company Apple (NASDAQ:AAPL) and bought Alphabet (NASDAQ:GOOGL) in the quarter. At that time, this move wouldn’t have made much difference to his portfolio, but today, it could mean a major growth opportunity. There’s one big reason both the tech companies are soaring today. Let’s look into it.
A $4 trillion opportunity
Berkshire sold 41.7 million Apple shares in the third quarter. Buffett has trimmed his position in the company by 74% over the past two years. Yet, Apple continues to remain its largest holding at 22% of the total portfolio.
The hedge fund purchased 17.8 million Alphabet shares and has a position of 2% in the portfolio. A hot stock today, Alphabet has grabbed attention recently, and the company has hit a $4 trillion valuation. The stock has generated over 12,000% returns since the IPO in 2004. GOOGL stock is exchanging hands for $336 and has gained 70% in a year.
While Buffett has avoided tech stocks for a long time, he finally gave in and purchased Alphabet before his exit. The company’s revenue growth and its network effect could have led to this decision. Buffett earlier admitted missing Google was one of his investing mistakes. Alphabet enjoys strong brand loyalty and continues to attract more users while refining their experience.
Apple chooses Gemini
Each year since 2011, Google’s ad revenue has grown as it continues to attract more users. It is an undisputed leader, and there’s no doubt that any of its competitors can take its position anytime soon. Alphabet’s new Search feature has attracted over two billion monthly users, making it one of the most crucial networks today.
Apple has joined hands with Alphabet to run its artificial intelligence features, including a Siri update this year. It is a multiyear partnership that will use Google’s Gemini and cloud technology for Apple’s models. Apple continues to dominate the industry with its smartphones and its services segment. People are extremely loyal to Apple, and so many people have Apple devices, allowing the company to monetize the adoption of artificial intelligence. This deal indicates growing trust in Alphabet’s AI capabilities. The deal helped Alphabet hit a valuation of $4 trillion for the first time since 2019.
Google pays Apple billions each year to be the default search engine on its phones. The recent partnership will benefit both the companies amid the ongoing tech competition. Alphabet enjoys a strong advantage in the search volume, with its search engine getting over 90% of the global share. It also enjoys a strong position in the advertising segment, which generated $74.18 billion in the third quarter.
Ideal long term play
Alphabet impressed the market with strong financial results, beating top and bottom line estimates. The third quarter revenue jumped 16% to $102 billion, and EPS came in at $2.87 per share, up 35% year over year. Growing demand for AI infrastructure and the adoption of custom chips has led to the impressive growth in numbers.
Besides Google Search, Alphabet’s Google Cloud segment has steadily driven revenue growth. The company continues to see an improvement in Google Search and has added generative AI features to drive traffic. It has also developed custom AI chips known as Tensor Processing Units, and they’re already adopted by Apple. Further, its autonomous driving subsidiary, Waymo, could become an important business segment. Waymo is already present in six cities and will be launched in four more this year. While the adoption and growth might be slow, it could drive revenue in the long term.
I believe Buffett’s purchase of Alphabet is a win for the hedge fund.