Warren Buffett has long championed boring, predictable cash cows. But I think a real shift is quietly taking place inside Berkshire Hathaway (NYSE:BRK.B).
The firm is executing a big capital reallocation, away from Apple and into Alphabet. This isn’t just a routine rebalancing – it’s a pivot towards artificial intelligence (AI).
Following the money
The latest and most dramatic move came just days ago. Berkshire committed $10bn in a private placement as part of Alphabet’s historic $80bn equity capital raise.
That marks a big shift from the firm’s focus on Apple, which Buffett viewed as a consumer products company. Greg Abel appears to have other ideas.
Berkshire has bought $5bn in Alphabet’s Class A shares and $5bn in Class C stock. In doing so, it’s made Google’s parent company a top equity holding.
This $10bn injection directly funds Alphabet’s huge data centre expansion. And this is something Apple has conspicuously avoided.
That’s not to say the iPhone company is doing nothing. At its Worldwide Developers Conference (WWDC) this week, the iPhone maker unveiled its latest AI products.
These included next-generation Apple Intelligence and a new Siri AI. This can understand on-screen context and execute actions across apps.
Despite Apple’s continued consumer focus, Berkshire has been selling. And Buffett’s firm has been focusing on the foundational AI infrastructure.
Berkshire’s advantage
AI companies are spending in a spectacular way. But all of that has to be funded somehow and there isn’t unlimited capital around.
SpaceX, Anthropic, and OpenAI are coming to the stock market. And there also looking for big money from investors.
I’ve heard it suggested that Alphabet’s $85bn raise is an attempt to get ahead of this. Sooner or later, capital is going to be hard to find.
In that world, Berkshire’s position becomes hugely valuable. The firm has nearly $400bn in cash looking for opportunities.
Some of that is for guarding against potential insurance liabilities. A major disaster remains the biggest risk for the firm.
Importantly, though, there’s a lot left for other things. And that could include AI companies looking for capital.
Warren Buffett has long talked about the value of having cash when others need it. And that might be starting to show up in the tech sector.
The bottom line
Alphabet is investing heavily in AI, but at a huge cost to its balance sheet. Apple is protecting its financial position at the risk of missing out.
Berkshire Hathaway, however, offers the best of both worlds. It’s able to buy into AI companies at unique discounts while maintaining is unmatched financial strength.
A lot of investors have thought Berkshire was waiting for a stock market crash. Opportunities, however, might be closer at hand.
As tech companies shift from investing their own cash to raising funds, Buffett’s company is in a unique position. And I think it’s a strong one.
That’s why Berkshire is still my largest stock investment. For anyone who doesn’t own it, I think it’s one to consider seriously.
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Stephen Wright owns shares in Apple and Berkshire Hathaway.
