Why Warren Buffett Is Finally Buying Google Stock

Warren Buffett, the greatest investor of all time, has said for many years that his biggest mistake was missing Google stock. He has said this time and time again over the years. Today, I'll share the top reasons why he said this and why he thinks Google is such a great business. Then, I'll discuss why now, in 2026, at age 95, he decided to initiate a position in Google. In fact, he made it one of Berkshire Hathaway's largest investments. And yes, despite retiring last year, Warren Buffett confirmed that he initiated this position. That comes from an interview with his favorite host, Becky Quick. Later in this video, I'll share that exact clip where he talks about the Google investment and why he decided to do it. But first, let's just talk about what a great investment Google's been. As we sit today, Alphabet, the parent company of Google, is the third most valuable company in the world at a market cap of $4.22 2004, the stock has a total return of 13,919%. That is a 25.3% compound annual growth rate. So, why is it that Google continued to grow and become so valuable? Well, it's because they have one of the best money-generating businesses in history. Google Search, and specifically Google Ads, is a cash cow. And we'll talk about that later in the video. And can Google still be a great investment today? Well, it's possible. In early 2025, I thought the company was overvalued, and a lot of people in our community did as well. I initiated a position that April tariff sell-off period, and on that stake, I have a 115% total return, and I feel pretty good about that as a long-term holding. So, the fact that Buffett built this position in early 2026, it leads a lot of people to feel even more confident about the long-term strength of Google. After all, Buffett is a long-term focused investor. By the way, if If to use the stock research tool that I show throughout the video, this is the next generation version of dividenddata.com. It just launched. And we currently have a founding member deal where you can get 50% off annual membership. Link in the description and pinned comment. With that said, let's roll the intro and get into today's investing video. >> [music] >> The following reflects the opinions of a man who spends far too much time thinking about stocks. Please do your own research before making any investment decisions. Nothing in this video is personal financial advice. Continue at your own risk. >> My name is Zach. This is dividenddata.com. You should leave a like and subscribe to the channel if you enjoyed the video. So, what is it that makes Google such a great investment? Why is it such a strong business? And what's made it compound over all these years? Well, the main cash cow is Google search and the innovation they had on top of that was the pay-per-click advertising, the sponsored results within Google. That is the cash cow that has powered the entire business since then. And there's been a lot of new innovations and investments and acquisitions like YouTube, which have blown up and been fantastic for the company and is another high-value advertising unit for them. YouTube is a huge revenue stream for them. Google search is still the cash cow today, but they also have Google Cloud. That is the fastest-growing part of their business revenue-wise. And this isn't even mentioning a lot of the other tech advancements Google has had over the years. They invented the Transformer and the modern LLM. A lot of that was done internally at Google. So, they are a leader in the AI revolution and they are a big leader in building out that infrastructure. They have TPUs and semiconductors that they have developed and they have made many investments over the years. They have a large stake in both SpaceX and they have a large stake in Anthropic. So, Google has proven to be a great allocator of capital and that's a good thing cuz they have a lot of profits to allocate. And if you don't believe me, let's hear straight from Warren Buffett why Google is such a great business. >> Google I should have had some insight into because GEICO was a heavy user very early on. So, here we saw value in something at at that time I have no idea what we're paying per click now, but but we were paying 10 or 11 dollars a click for something that had no cost of goods sold and we were going to keep doing it. I mean, we could see that. So, uh I should have had more insight into that. Now, whether Bing was going to come along or other people were going to take away away the market, that's another question. Whether you had sort of a uh first user advantage that would be uh would prevail. And there is a lot of technology to it. So, so somebody could have come along with a better technological product that I would not have had any insights into that. I certainly had insights into the benefit for the user. >> Uh another stock that you mentioned over the weekend saying you should have known it early on was was Google, Alphabet, the parent company of Google because you knew how much they could charge you when it came to GEICO. >> Yeah, here we were GEICO paying them 10 bucks or something for a big click. I mean you 10 bucks 10 bucks and no no cost of goods sold. I mean, and and it produced results for us. That's why we paid them the money. Uh So, I had seen the product work and I knew the kind of margins. I mean, I always said it's great to find something that costs a penny and sells for a dollar and is habit forming. This doesn't cost anything. And and it it it's very useful. I mean if if you're look if you're looking at auto insurance on Geico, you know, it you're you've got an interest in auto insurance. I'm some very directed way of talking to people. So, the the real question in my mind I'd seen all of this before. I used to play bridge on all of this and I and what I didn't know was whether there'd be more entrance. I didn't know enough about technology to know whether this really was the one that would stop the competitive race and all that. I uh but I should have bought Google, too. >> But you know, if you ask me in retrospect what was our worst mistake in the tech field, I think we were smart enough to figure out Google. Those ads worked so much better in the early days than anything else. So, I would say that that we failed you there. And we were smart enough to do it and didn't do it. We do that all the time, too. >> Yeah. >> We were their customer very early on with with Geico, for example, and we so I I don't these figures are way out of date, but I as I remember, you know, we were paying them 10 or 11 dollars a click or something like that. And anytime you're paying somebody 10 or 11 bucks every time somebody just punches a little thing where you've got no cost at all, uh you know, that that's a good business unless somebody's going to take it away from you. And uh so, we were close up uh seeing the impact of that. And incidentally, if any of you don't have anything to do in your hotel rooms tonight, just just keep punching Progressive or something and >> [laughter] >> Don't really do that. >> [laughter] >> The thought just happened across my mind. But you know, that is you know, you've [clears throat] never seen a business almost never seen a business like it where and and I think for LASIK surgery and things like that I I think the figures were, you know, 60 or 70 bucks a click with no incremental, no cost. So, and I knew the guys. I mean, they actually designed their prospectus. They came to see me. And they a little bit after the original one when they went public, a little bit after Berkshire even. And so, I I had plenty of ways to ask questions or anything of the sort, educate myself. But but I blew it. >> Google Search, one of the best businesses ever, and it's still printing cash today. And this has led to Google generating tens of billions of dollars of cash flow every single year. In fact, for years Google didn't even know what to do with this money. They were generating so much cash flow that their balance sheet is just piling up. They did not pay dividends until recently. They did not buy back stock for a long time until recently. So, Google, they just built up this gigantic balance sheet. They peaked in 2021 with cash cash equivalents of 142 billion dollars. And this has been a very low debt company as well with net debt of negative 114 billion dollars. But something has changed with Google, and that's the AI revolution. Google Search was an extremely profitable capital-light business model. Relative to what they were earning, they did not have a lot of capital investments. Yes, they were building out Google Cloud as a nice growth business. But if we go back to even the start of 2023, relative to the cash they were generating, their CapEx wasn't that high. However, if we take a look at the modern-day capital expenditures of Google, it is increasing massively. Over the trailing 12 months, it's 109 billion dollars. In the latest quarter, it was 35 billion dollars. And that grew 100% year over year. And this is not stopping. Earlier this year, they guided to around 200 billion dollars of CapEx. And this is due to the data center build-out, specifically the AI data center build-out. Google, it's one of the leading AI companies, and on the infrastructure side, they are spending like crazy in order to have a strong market position. Because they not only serve their own products, they also are a large server of Entropic's models. So, it's a very interesting situation where after all of these years, Warren Buffett decides now to buy Google stock when some value investors are questioning the AI data center spend. It's a very interesting situation. So, let's go and hear straight from Warren Buffett in his own words why he's buying Google stock right now. >> How did the Alphabet position come along? >> I don't know, sure. But, I mean, I I normally wouldn't give you that answer on something like that, but I will because it it but we I am not doing anything that he doesn't approve of. He's not doing anything I don't approve of. We We talk all the time. He's, you know, he's uh uh Well, every day. I mean, and and and but it He is the decider. And uh uh Getting back to um Alphabet or Google, uh it's probably number five or six. >> Well, I thought it was number three if you consider uh the $10 billion private placement that would go along with that because that would put it north of $31 billion. >> Yeah, but we we we've got we've got the Burlington Northern Railroad, which is certainly worth far more money than that. >> Okay, so you're count you're counting fully owned companies as well. >> you know, I mean, we are always making the choice between what whether we'll buy marketable securities or the company. We look at it the same way. >> Okay, but you've quickly grown a north of $30 billion investment in in Alphabet. That puts it in terms of those companies that you own pieces of behind only Apple and >> American Express >> American Express. So, Coca-Cola would be smaller, Bank of America would be smaller. >> a close one. That was the question is when you get into the Google is or any of the AI companies, you're putting out a huge amounts of money and I can put huge amounts of money in the government bonds and get you know, 20 or 30 or 40 billion dollars a year in terms of payments from them. So, a good business is one that earns a a lot more than the than than and has prospects [clears throat] of continuing to earn a lot more than the the returns on on uh on essentially riskless investments which you could define as treasuries. >> Forever, people have thought of you as somebody who doesn't invest in technology. And by the way, you've described yourself as somebody who doesn't invest in technology. Obviously, the biggest position in the Berkshire portfolio is Apple. A position that you put on, but at the time you called that a consumer company. Google you just called an AI company. So, what happened? >> Google The real question with Google and all of its competitors now is they they're all laying out hundreds of billions. I think that >> They're big cap expenders. They're big. >> yeah, and that's that's real money. I mean, it's If a railroad were to lay out 300 million or billion or 200 billion you know, that that kind of money wasn't even put in the railroad business you know, in terms of developing them. So, and and they are that's the game they're they're they're playing now. They won't play that game with with with uh computer software. >> when they were asset light, you didn't like them and the markets loved them. Now that they are >> a mistake. >> spending heavily on capex, a lot of shareholders don't like them as much because they don't >> more likely to be a winner based on the record than than probably 90% of or 95% of what gets merchandised through Wall Street because Wall Street is interested in whether they can sell something. And uh I can't recall a report on Wall Street that really gets into the internal rates of return that a business is actually earning. That What What's more important than what a business is earning, but they ask all these questions about what will happen next quarter or, you know, or it's just it's ridiculous. >> about why Alphabet versus the other magnificent seven or the other, you know, hyperscalers who are doing the same thing, spending a lot of money, Amazon, Microsoft, whoever it may be, to try and win in this position of AI. >> I don't want to sit around knocking the others. They don't have any choice. >> To spend like this, you mean? >> Yeah. They're now playing a game in many cases where they or some cases where they're playing a game they don't want to play. IBM would have loved it if they just kept playing the game that IBM was playing in the '30s or the '40s or the '50s or the '60s. You know, and then somebody came along with and said, "We'll get a better result for you." achieving the objective of all the customers you have because that's all you going to have is either have happy customers or you don't have customers over time. And uh The customer's not dumb. Wall Street can be very dumb. And in terms of they they can dream. >> So, there you heard it. Warren Buffett is buying Google stock right now or he has been so far in 2026. And I think of that clip I just showed you, one of the telling parts was when he was talking about return on capital in a business and being a capital allocator. And yes, we already knew that Google had such a fantastic core business model, but one of the more underrated parts of Google over the long run has been how great their capital allocation has been. As I mentioned, they had the SpaceX investment, they had the Anthropic investment, they bought and built YouTube into an amazing asset. They have invested a ton into Waymo, which could be another growth business. They've invested a ton into Google Cloud, which is proving to be a fantastic growth business for them and is now becoming increasingly profitable as well. Let's put some numbers to that, though. Google's return on equity over the past 5 years, it's been around 20 to 30%. In 2025, they had a 31.8% return on equity. Their return on invested capital was also very good. It's around 20%, 21.8% in the recent year. Their return on capital employed has been great as well, 26.2% in the latest year. So, historically, Google has a track record of high return on investment. And most of this money, it's going into AI data centers, an area where Google has a lot of experience and is having massive demand right now. Google Cloud is growing rapidly. It's the fastest growing hyperscale cloud. It's growing faster than Microsoft Azure and it's growing faster than Amazon Web Services. And they have a huge cloud backlog. So, Warren Buffett, he might not be much of a AI guy. He's 95 years old. He's not never really been a technology guy. But I think he does respect Google's ability to invest capital. They have proven to have a good track record of capital allocation. And he mentioned in the clip how his options, he has a huge balance sheet right now, tons of cash. And his options are basically to buy marketable securities, public stocks, he can buy fully owned private companies, or he can buy US Treasuries, and those are risk-free returns. So, he could get billions of dollars a year risk-free. Or, he can allocate some of that money to a company like Google, and they can allocate the capital themselves. And I think a lot of people, especially value investors, they look at the numbers, and with Alphabet, it's the third most valuable company in the world, 4.2 trillion dollars in market cap, and people start to think, "How much larger can the company get?" But, the reality on the ground is that Alphabet's in a great position, and expectations are they will continue growing in the future. By 2030, analysts are expecting earnings per share of $24.26. Based on today's stock price, that would be a 14.3 P/E ratio. So, today it's trading at 14.3 2030's P/E, and 24 times next year's P/E ratio. So, if we assume the 24.2 P/E ratio stays, and in 2030 they trade at 24.2, that would imply a share price of $587, which is 69% upside from here. That's a 12.5% annual return. So, it's not bad. Although, in my opinion, I think Google is trading closer to fair value right now. I don't think it's a discount. In that early 2025 period, I thought Google stock was a discount. On our value graph tool on dividenddata.com, it showed it was 32% below the implied fair value, and today it's implied 9% above fair value, which is still pretty reasonable. After all, one of Warren Buffett's old sayings is that is that you want to buy a great company at a fair price. And the other thing to keep in mind with a company like Google is that the fair value is continually growing over time. And that's because the actual business is growing. Over the past 10 years, Alphabet's grown their earnings per share at a 27.1% compound annual growth rate. That means Alphabet is earning 10 times what they were 10 years ago. And that's why with great companies, you often just want to have time in the market. Time in the market beats timing the market. So, that's why Warren Buffett is buying Google stock. And if you want to use the stock research tools I showed throughout the video, it's all available at dividenddata.com. You can try it out for free, and we also have a special offer to celebrate this new launch of the next generation version of the website. You can lock in 50% off annual membership, and you can lock in that discount price for life. There's a 30-day money-back guarantee, so no risk in trying it out. And with that said, thanks for watching, and I'll see you in the next video.