Key Takeaways
- Berkshire Hathaway's reported $10 billion investment in Alphabet Class A and C shares ([$GOOGL](/crypto/alphabet-tokenized-stock-hyperliquid), $GOOG) has seen a notional decline of approximately 18% since its peak accumulation in early 2022.
- Alphabet shares have underperformed the S&P 500 ($SPX) by roughly 23 percentage points since March 2022, falling 15% compared to the benchmark's 8% gain.
- This underperformance casts a spotlight on Berkshire's strategic timing and valuation assessment of large-cap technology stocks, a sector historically less favored by the conglomerate.
- The investment's current trajectory raises questions about its alignment with Berkshire's long-term value investing principles amidst a rapidly evolving tech landscape.
Berkshire's Big Tech Bet Under Scrutiny
Warren Buffett's Berkshire Hathaway Inc. ($BRK.A, $BRK.B) is facing scrutiny over its estimated $10 billion investment in Alphabet Inc. ($GOOGL, $GOOG) after shares of the tech giant have posted an 18% notional decline since the conglomerate's reported accumulation phase in the first quarter of 2022. The position, initially viewed by some as a rare foray into a high-growth tech name for the Omaha-based firm, has yet to deliver the characteristic bargain returns often associated with Buffett's picks.
Alphabet's Class A shares ($GOOGL) closed at $145.20 on Friday, marking a significant drop from their peak of $170.91 reached in April 2022, shortly after Berkshire's position became known. This underperformance has ignited debate among investors regarding the wisdom of the timing and the underlying valuation thesis for Berkshire's third-largest publicly disclosed common stock holding.
Market Impact
Alphabet's shares have demonstrated notable weakness in the period following Berkshire's reported investment. Since March 31, 2022, $GOOGL has declined by approximately 15%, while the broader S&P 500 ($SPX) has advanced by 8% over the same timeframe. This 23-percentage-point underperformance marks the largest relative lag for Alphabet against the benchmark since the market recovery phase of late 2020.
The divergence in performance is particularly stark when considering Alphabet's market capitalization, which has seen roughly $250 billion wiped out from its April 2022 peak, falling to $1.85 trillion. Trading volumes for $GOOGL have also seen sporadic spikes, with an average daily volume of 27 million shares over the past month, slightly above its six-month average, indicating heightened investor activity and re-evaluation.
While Berkshire's other major tech holding, Apple Inc. ($AAPL), has largely soared, Alphabet's struggle highlights a potential misstep in sector-specific timing. The underperformance has not significantly impacted Berkshire's overall portfolio, given the relative size of the Alphabet stake compared to its massive $350 billion portfolio. However, it serves as a cautionary tale for investors who often mimic Berkshire's moves, underscoring that even the Oracle of Omaha's team can encounter market headwinds.
What Analysts Are Saying
Wall Street analysts hold diverging views on Alphabet's near-term prospects, reflecting the complex interplay of its robust core business and emerging competitive pressures. Many maintain bullish long-term outlooks, while acknowledging current challenges.
According to Goldman Sachs analysts, led by Eric J. Sheridan, Alphabet remains a strong "Buy" with a 12-month price target of $175. In a recent client note, Sheridan highlighted, "Alphabet's foundational strengths in search advertising continue to drive robust revenue, complemented by accelerated growth in Google Cloud and ongoing innovation in AI. We see current valuations as an attractive entry point for long-term investors." The firm projects an average annual revenue growth of 12% through 2026.
Conversely, JP Morgan's Doug Anmuth expressed a more cautious stance, downgrading Alphabet to "Neutral" with a price target of $150 in a research report dated October 12. Anmuth noted, "While Alphabet's ecosystem is undeniably powerful, we are seeing increasing competitive intensity in the search advertising landscape and persistent regulatory headwinds that could temper growth expectations in the near term. The stock's current multiple may not fully discount these emerging challenges." He pointed to increased spending on AI development and potential margin compression as key concerns.
Morgan Stanley's Brian Nowak, maintaining an "Overweight" rating and a $180 price target, offered a balanced perspective. "Alphabet's long-term narrative around AI integration across its product suite remains compelling, but execution risk and the pace of monetization will be critical," Nowak stated in an investor briefing. He emphasized the importance of Google Cloud's continued expansion and YouTube's advertising recovery for sustained growth.
What to Watch
Investors should monitor several key catalysts and data points that could influence Alphabet's trajectory in the coming months. The company's third-quarter earnings report, scheduled for October 24, will be crucial. Analysts will scrutinize advertising revenue trends, particularly from search and YouTube, as well as the profitability and growth rate of Google Cloud. Any significant deviation from consensus estimates could trigger substantial price movements.
Key technical levels for $GOOGL include immediate support at $140, a break below which could see the stock test its 200-day moving average around $132. Resistance is observed near $155, with a sustained move above this level potentially opening the path towards $165. These levels will be closely watched by traders for signs of a reversal or further consolidation.
Furthermore, regulatory developments, particularly from the European Union, pose an ongoing risk. An anticipated ruling from the EU's antitrust commission regarding Google's ad tech business, expected in the first quarter of 2025, could result in fines or structural changes affecting revenue. Any adverse decision could weigh heavily on investor sentiment.
Finally, the broader economic outlook, specifically consumer spending and corporate advertising budgets, will remain a critical factor. A slowdown in global economic activity could directly impact Alphabet's primary revenue streams, potentially reversing any positive momentum from its core businesses.
