Warren Buffett is no longer running his legendary investment company Berkshire Hathaway. However, it’s still worth keeping an eye on the company’s trading activity as it employs some very smart investors.
Recently, Berkshire posted its 13F filing with US regulators, giving investors like us a glimpse of its trading activity last quarter. And while there were a few interesting trades in Q1, one stood out above the others.
A massive buy
The trade I’m referring to is buying activity in Google owner Alphabet (NASDAQ: GOOG) (NASDAQ:GOOGL). In Q1, the firm added 36.4m shares of the GOOGL ticker, increasing its position size by over 200%, and 3.6m shares of the GOOG ticker (a new position).
As a result of this buying, the company held 54.2m GOOGL shares and 3.6m GOOG ones at the end of the quarter (making Alphabet a top 10 holding). At today’s share prices, those stakes are worth a total of about $23bn.
I’ll point out that while it’s still early days, this trading activity already looks very profitable for the firm because since the end of Q1, Alphabet has soared to new all-time highs.
We don’t know exactly what prices Berkshire paid for its shares. But given that both tickers were in the high $200s in late March (and are now in the highs $300s), it’s most likely sitting on a huge profit.
A trade worth following?
Should investors consider following Berkshire and buying Alphabet shares today? Personally, I think it could pay to wait.
To my mind, the growth stock is a little expensive today. At present, the forward-looking price-to-earnings (P/E) ratio is about 27.
That’s miles above its 10-year average P/E ratio. And to my mind, it doesn’t leave a lot of room for a setback (like a slowdown in global advertising spend or cloud computing/AI spend).
I’d probably want to see the P/E ratio below 25. I’d consider buying more shares myself if it was in the low 20s.
I’ll point out that I do see a lot of long-term growth potential here. Looking ahead, this company is well placed to generate growth from cloud computing, chips, generative AI, digital advertising, self-driving cars, and more.
I’m particularly excited about the potential in the chip space. Recently, the company has done deals with the likes of Meta Platforms, Apple, and Anthropic.
I’m also excited about the potential of its generative AI app Gemini, now that it’s being integrated across the Google platform. It’s worth noting that in Q1, Gemini Enterprise saw 40% quarter-on-quarter growth in paid monthly active users, which shows that businesses are using this (and not just Anthropic’s Claude and OpenAI’s ChatGPT).
But valuation is important. And right now, I think there are better stocks to consider buying given the lofty earnings multiple here.
Edward Sheldon has positions in Alphabet and Apple.
