Buffett Google bet 2 decades after billionaire inspired search IPO

In the prospectus for Google’s IPO 21 years ago, founders Larry Page and Sergey Brin paid homage to Warren Buffett, acknowledging his influence on their approach to shareholder communication. They titled their founders’ letter as “‘An owner’s manual’ for Google’s shareholders,” with a footnote highlighting Buffett’s essays and ‘An Owner’s Manual’ to Berkshire Hathaway shareholders as sources of inspiration.

Fast forward to the present day, and Buffett’s holding company, Berkshire Hathaway, has disclosed a stake in Google’s parent company, Alphabet, valued at approximately $4.3 billion as of the end of the third quarter. This investment marks one of Berkshire’s largest equity holdings and a significant move into the technology sector, which Buffett has traditionally been cautious about. The news of Berkshire’s stake in Alphabet sent the tech giant’s shares up by 3% on Monday.

Buffett’s admiration for Google is not new; in 2017, he expressed regret for not investing in the tech giant earlier when Berkshire’s insurance subsidiary, Geico, was spending substantial amounts on advertising with Google. Despite missing out on Google in the past, Berkshire did eventually purchase shares in Amazon in 2019, holding $2.2 billion worth of the e-commerce company’s stock.

Alphabet has seen a 50% increase in its share price this year, with its revenue hitting $100 billion in the third quarter, driven by growth in its cloud division and artificial intelligence services. The company’s valuation remains relatively lower compared to other AI-driven companies, trading at about 26 times next year’s earnings.

Page and Brin, the Google founders, are now ranked seventh and eighth on the Forbes billionaires list, just behind Buffett. In their IPO prospectus, they referenced Buffett’s philosophy on long-term thinking and quarterly results, emphasizing the importance of focusing on core interests rather than short-term market expectations.

The decision to implement a dual-class stock structure at Google, giving the founders significant voting control, was also influenced by Buffett’s successful use of a similar structure at Berkshire Hathaway. This structure allows companies to prioritize long-term goals over quarterly results, a strategy that Buffett has long championed.

Overall, Buffett’s investment in Alphabet showcases his evolving approach to technology investments and his continued admiration for the innovative culture fostered by companies like Google. As Berkshire Hathaway prepares for a leadership transition, Buffett’s endorsement of Alphabet highlights the tech giant’s long-term potential and solidifies its position in the ever-changing tech landscape.