Berkshire Hathaway's Alphabet Stake Aims to Extend Outperformance Under Greg Abel
Berkshire Hathaway outperformed the S&P 500 index by a wide margin from 1965 through the end of 2025, posting an annualized return of 19.7% against the index's 10.5% average total return. This record was built under the leadership of Warren Buffett, who employed a strategy of acquiring high-quality businesses at reasonable valuations and holding them indefinitely to allow compounding to drive returns.
Berkshire Hathaway outperformed the S&P 500 index by a wide margin from 1965 through the end of 2025, posting an annualized return of 19.7% against the index's 10.5% average total return. This record was built under the leadership of Warren Buffett, who employed a strategy of acquiring high-quality businesses at reasonable valuations and holding them indefinitely to allow compounding to drive returns.
The conglomerate has transitioned to new leadership, with Greg Abel, formerly vice chairman of non-insurance operations, now serving as CEO. While the management change raises questions about maintaining the company's historical outperformance, Abel has already made a notable move in the technology sector. In the third quarter of 2025, Berkshire Hathaway announced a stake in Alphabet, which subsequently became the company's third largest holding when combining Class A and Class C shares. Buffett stated that he initiated this position last year, marking a departure from his previous stance that the tech sector was too difficult to assess for durable competitive advantages.
As of October 13, Alphabet shares had risen 49% over the past 12 months. Despite this increase, the stock trades at a forward price-to-earnings ratio of 22.8. The Alphabet position currently represents 3.4% of Berkshire Hathaway's total market capitalization. The investment signals confidence in Alphabet's digital advertising, streaming video, and cloud computing operations, as well as its artificial intelligence strategy. Alphabet is positioned across multiple layers of the AI industry, including research, model development, chips, and cloud services.
However, challenges remain for Berkshire Hathaway's future performance. Over the past decade, Berkshire's shares have climbed 260%, a figure that lagged the overall market due to the company's massive scale. The conglomerate also holds a cash pile of $359 billion, which could drag on share-price performance if sizable investment opportunities are not identified. Meanwhile, Alphabet faces heightened risk from its current spending cycle. The company's capital expenditures are set to total $200 billion in 2026 before rising further next year. This aggressive investment in AI-related infrastructure caused Alphabet's free cash flow to turn negative in the second quarter, introducing significant uncertainty regarding how the AI boom will ultimately affect its financials.