Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 9
As has been discussed, Berkshire is buying $10bn of newly minted Alphabet shares at $350 apiece, a slight discount to market price. (which was about $376 then, about $363 now)
I've been pondering this a bit more since the news came out, since the valuation seems quite stretched, at least superficially. Those shares are being bought at 10.6 times trailing sales per share, versus 15 years of typical numbers more like 6-7, and a headwind of likely falling net margins (meaning the fair P/S ought to fall) as the capex jumps and the depreciation line soars.
https://www.macrotrends.net/stocks/charts/GOOGL/al...It seems to me that their stock price is affected by the current bubbly AI narratives, which is some unknowable mix of "transient" and "justified".
On the other hand, it's about the best moat out there, if you ask me. They absolutely print money, and recent business results are knocking it out of the park.
So, my question -
Would you be a buyer of Alphabet shares at $350? Assuming a medium to long hold, of course.
Jim
No. of Recommendations: 1
Yes and I have
No. of Recommendations: 2
I suppose I would. Peter Lynch often said that you own habits and observations are one of your best market analysts. I use Google search, Google maps, gmail, Google Earth, Google Chrome. I don't use Bing, Waze, Hotmail, Edge.
I'll leave it to BRK to figure out how much and at what price.
No. of Recommendations: 2
No I wouldn't. But I sure hope it works out for Berkshire. If it doesn't, it's small change in big scheme of things anyway.
No. of Recommendations: 9
I'll leave it to BRK to figure out how much and at what price.
...
I sure hope it works out for Berkshire. If it doesn't, it's small change in big scheme of things anyway.
These sentiments are fairly consistent with one another.
I'm tempted (though with options, my usual go-to), and I wouldn't mind a long term position of my own, but I think I'd be willing to gamble that better prices are coming. Or at least better valuation levels...same price, later date, more value per dollar.
Jim
No. of Recommendations: 6
Google/Alphabet Revenue per share has compounded on a trendline with 23% CAGR for every year since it went public in 2004, so far. Its share price and earnings/share follow that 23% CAGR pretty closely.
So on the one hand, just because Google doubled in the last 3 years doesn't mean it will double in the NEXT 3 years. However, so far for 21 years google's doubling in the previous 3 years has always been followed by a doubling in the next 3 years. So expecting it to do SOMETHING like that is arguably the way to bet.
With 23% CAGR as its baseline, Google has a lot of room for hiccups and tripping over the new technology before it becomes a BAD investment. It could take a complete dump and turn in an unprecedentedly bad 12%/year for 3 years in a row, and still be a good investment.
By the way, the $80 billion Google seems to want to raise is 20% less than it spent buying back its own shares in 2023 + 2024. That $80 billion is about 9 months of its 2025 earnings.
So in perspective, I think it is fair to say Google would like to spend less than a year's earnings to kickstart its own AI position in this grand AI race that the hyperscalers are engaged in. Given their 24 record of doubling every three years, does that seem like an interesting bet to make? It seems to be interesting to Berkshire and to Greg.
Personally I have become an investor in Google in the last few months, in case that matters to how you read this.
R:
No. of Recommendations: 7
This is an interesting thread for me as I sold out off my very large GOOG stake and have replaced most of it with BRK, including some final swaps / Brk additions after BRK’s GOOG purchase. The BRK position is mostly a defensive one in lieu of holding cash. But I’m also on board with Abel to date - seems like the right man at the right time.
I don’t have any particular insight to share on either, though. My concern with Google was that I did not expect more than middling returns from here, for the foreseeable future, given the capex game they’ve been compelled to play. I also wouldn’t discount how big the capital outlay over the next 5-10 years will be — this isn’t a one and done, and one’s math of future profits changes materially depending on how one accounts for aging chips.
Too hard pile for me given the changed risk/reward post run up, including at $350, but I am a big fan of the move from BRK’s perspective. Google has proved it’ll come out the other side of AI a winner and increased profits should follow. Brk has been underexposed to tech and is sitting on too much cash (I’ll only start to worry about impatience if the purchases are of lower quality from a 5-10 year perspective or if cash returns to the 150-200 mark in this period of exuberance). The moves give them a decent slice of another railway of the tech world. If I had the limited options that comes with holding 400 billion cash I’d still be holding.
No. of Recommendations: 2
Would you be a buyer of Alphabet shares at $350?
I had a few shares called away this week from covered calls. I don't have plans to buy them back. I acquired them about this time last year when I was assigned on some 180 puts so the total return was nice. Coincidentally my exposure to Google is now equal through my own shares and BRK.
I made some comments over on the Alphabet board about what I think of their AI products. I think they could have a nice AI moat with the average Google consumer. I'm very anxious to see how Apple does with the Siri AI reboot. I think this might be their last shot to get it right and I hope they are not limited by compute which will result in the Apple user receiving another bad experience. Time will tell.
Jeff
No. of Recommendations: 1
Would you be a buyer of Alphabet shares at $350?
Well, if you would, today is the start of your opportunity.
GOOGL at $345.93 as I type
Jim
