This Artificial Intelligence (AI) Stock Isn’t in Warren Buffett’s Portfolio — but It Follows His Rules

As Warren Buffett prepares to step down as CEO of Berkshire Hathaway at the end of 2025, his impressive track record of investment success continues to attract attention. A testament to his shrewd investing strategy is exemplified in the phenomenal rise of Berkshire Hathaway’s stock throughout his tenure. If you had invested $1,000 back in 1965, it would have grown to approximately $44.7 million by the end of 2024—a stark contrast to the $342,906 that an equivalent investment in the S&P 500 would yield.

Buffett’s strategies are built on fundamental principles of value investing. He typically avoids technology stocks, preferring businesses he can easily understand. Still, there’s one artificial intelligence (AI) stock that stands out as a potential candidate for inclusion in Berkshire’s extensive portfolio—even though Buffett has historically been hesitant about this sector.

### Understanding Buffett’s Investment Philosophy

Warren Buffett, known as the “Oracle of Omaha,” employs a value investing approach characterized by patience and discipline. He often seeks out solid companies at reasonable prices, looking for firms with consistent growth, profitability, and robust management teams. Criteria also include companies that return capital to shareholders through dividends and share buybacks.

Buffett’s time horizon for investments is exceedingly long—he often states that his preferred holding period is “forever.” His portfolio boasts numerous wholly-owned subsidiaries, such as Duracell and Dairy Queen, alongside substantial investments in publicly traded companies totaling around $278 billion.

Despite his skepticism toward tech stocks, Buffett ventured approximately $38 billion into Apple between 2016 and 2023, demonstrating that he can indeed see the potential in favorable companies, regardless of their industry classification. Apple’s brand strength, coupled with its history of stock buybacks and dividends, aligned perfectly with Buffett’s investment strategy.

### Alphabet: An Attractive AI Stock?

One AI stock speculated to resonate with Buffett’s investment philosophy is Alphabet Inc., the parent company of Google. Alphabet possesses qualities that make it a favorable proposition for Berkshire Hathaway’s portfolio. The company has demonstrated a strong track record of revenue and earnings growth, while also returning significant capital to shareholders—distributing about $9.8 billion in dividends and executing over $61 billion in stock buybacks over the last four quarters.

The company’s leadership is another compelling factor. With Sundar Pichai at the helm since 2015 and Google’s co-founders Larry Page and Sergey Brin still on the board, Alphabet showcases a solid management structure that is key to long-term success.

Moreover, Alphabet currently boasts a price-to-earnings ratio of 19.4, which is relatively inexpensive compared to the broader market’s ratio of 23.7, making it an attractive investment considering its growth potential.

### Challenges in the AI Landscape

However, investing in Alphabet isn’t without its challenges. Most of its revenue still derives from advertising, a model threatened by potential antitrust regulations and increased competition from emerging AI technologies. The U.S. Department of Justice recently secured a court victory against Alphabet regarding its business practices, which could have implications for the company’s long-term market dominance.

Additionally, rising competition from AI-powered solutions like OpenAI’s ChatGPT presents a significant threat to traditional search engines by offering direct answers rather than directing users to web pages. Alphabet’s latest efforts to integrate AI with its operations—launching AI Overviews in its search engine and introducing the AI assistant Gemini—attempt to mitigate this disruption.

While Alphabet maintains a leading position in the AI sphere, its future remains somewhat uncertain. Despite the risks associated with these challenges, its low valuation makes it an enticing option for long-term investors.

### Conclusion

As Buffett prepares to transition away from day-to-day operations at Berkshire Hathaway, the investment world remains watchful. While one might think that Berkshire would not generally gravitate towards tech stocks, Alphabet represents a potential exception due to its strong fundamentals, returning shareholder value, and steadfast management.

Investors looking for growth with a foundation in sound economic practices may find Alphabet appealing, especially given its current undervaluation and ongoing innovation in AI. Buffett’s historical reluctance offers a cautionary tale; however, for those with a constructively optimistic outlook, Alphabet could indeed symbolize a wise addition to Berkshire’s diversified portfolio.

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