Warren Buffett: I Initiated the Google Investment – Here’s Why” (2 Undervalued Stocks To Buy)

Warren Buffett recently joined CNBC's Squawk Box to explain why Berkshire Hathaway built a more than $31 billion position in Alphabet, why he personally initiated the investment, and how he now thinks about technology and artificial intelligence. In just a moment, I'll play you the full interview clip uninterrupted, then I'll break down Buffett's biggest investing lessons, explain what he really meant when he said, "Why should I invest in things I don't understand?" and share my own reaction to some of his most important comments. After that, we'll take those lessons and apply them to two undervalued stocks that I believe deserve a closer look right now. Let's hear what Warren Buffett has to say. >> Berkshire Hathaway now holds a more than $31 billion stake in Alphabet. That's a position that the conglomerate started to build in the third quarter of 2025, but it really ramped up this year after Greg Abel took over as CEO of Berkshire. In fact, just last month, it added $10 billion as part of a private stock purchase of those Alphabet shares. Now, there's been a lot of speculation as to who decided to to purchase those shares with many pointing to the stake as a sign of how Greg Abel will be putting his mark on the Berkshire portfolio. I asked Buffett, "Who's idea it was to buy the tech giant?" >> I initiated but I mean I I normally wouldn't give you an answer on something like that, but I will because 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 of the time. He's you know, he's uh Well, every day. I mean and and But he is the decider. And 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. >> 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 on companies as well. >> I mean, we are always making the choice between what whether we'll buy Berkshire Hathaway securities or the company. We look at it the same way. There's there are some minor exceptions to that. We can't We can't set dividend policy, for example, if we don't own it, but the chances of those being material The important thing is to buy a good business and to buy it on the right terms and then to get the right person to run it. >> 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 >> and American Express. So, Coca-Cola would be smaller, Bank of America would be smaller. >> and >> [clears throat] >> it but but if you take Coca-Cola, which we've owned you know, 45 years, whatever it may be. Uh you know, we we we don't have a thing to do with running that business and but it's a very good business and I would >> [clears throat] >> When I say a very good business, I mean something that you can expect to own earn high returns on capital over a long period of time. Now, the question is when you get into the Google is >> [clears throat] >> uh uh 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. Uh so, a good business is one that earns a a lot more than the than than and has [clears throat] prospects of continuing to earn a lot more than the the returns on on uh on essentially riskless investments, which you could define as Treasuries. But if you take something like American Express, you know, there are most of the banks earn 13 14% on on on capital. Uh if I asked everybody to guess uh what American Express would uh they would they would they would come up with some figure similar, but it's so different that it earns 30% plus on capital and it does not incur more risk in doing so than the banks that earn 13 or 14% and that the trick in life is to find I mean the most interesting thing is to find businesses that are going to earn high returns on capital for an extended period of time. And that's what happened with with Berkshire for a long period of time. The long period of time gets to be very important because those doubles later on are a very big numbers. But Charlie uh Charlie Munger, my my partner for many for decades, he just he just pounded the idea that it it wasn't a good business just because it it was doing sexy things or whatever might be, but if it wasn't earning real cash that it that it would or be expected to do it in a very short period of time and and just be able to distribute it if you wanted to, but if you had if you could reemploy it as a business, it was even better than one that had had the ability to earn high returns, but you couldn't deploy the excess capital of those returns. >> Okay, let me ask you though. 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. So, I think that >> They're big cap expenditures, the biggest. >> Yeah, and that's and that's real money. I mean, it's if our 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 it. 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. >> No, so 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 >> they're more likely to be a winner based on the record than than probably 90% of or 95% of what gets merchandised through Wall Street cuz Wall Street doesn't just want to like sell something. And uh and 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, but you know, investing is is coming up with Well, the probably this close to the most successful long-term investor was was was Rockefeller. And but look at what oil and gas has done over 150 couple of hundred years. So, he kept compounding at a very good rate. Not as good a rate as I could have achieved in his early years cuz it's easier to do when you're small. Getting to do when you're large is You got the whole world looking at you trying to figure out how how come those guys are doing it we're not doing it. >> Why do you like Alphabet above all others and what made you initiate this position? What was the you recommend? >> I I would say that uh I don't like it as well as a at least four or five other businesses that we own. >> Other than Apple, the railroad >> Well, the >> American Express >> Yeah, I'm going to get the whole portfolio out of me, but uh uh >> But you like it enough to make it a huge position. >> I like Berkshire that way. I mean, Berkshire earned high returns on capital without without I'm I'm not talking about using the tricks of leverage or that sort of thing. I'm I'm not about >> But I'm talking 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. >> Well, I don't want to sit around knocking the others. They don't have any choice. >> Yeah. >> You know, >> They're having to to spend like this, you know. >> 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 of 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 cuz that's all you're going to have is either have happy customers 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. But the guy with a grocery store can't dream. I mean, I I worked in my grandfather's grocery store. And we saw with Well, we had one store in 1869 and we had one store in 1969. And and other people were earning high returns on capital. Uh some on a national scale. A&P, which is people don't associate the with anymore. In the 1930s, I mean, they were they were number one. And I mean, number one of Toastmasters in in in in in Washington. And they they they they had a very [clears throat] very very good hand. And that hand disappeared. >> So, it's a different game. Um and you like this game. You understand this game more than you understood the game they were playing before. Is that fair to say? >> all kinds of games that I don't understand sure. >> Yeah. But this game >> Why why Why Why should I expect to make money in all kinds of things that I don't understand? >> Mhm. >> And >> But that's what I'm getting at. What do you understand about this game at this point because most people would say he's never going to buy any technology stocks. And I think you've said the same thing yourself in the past. >> Yeah, but I have I've done it. And actually one of the most successful companies I was associated with called Data Documents >> Right. >> Aid >> Right. >> was We started a company called Data Data Documents Bank. We started Data Documents because a a couple pals of mine read in the paper that IBM had settled a antitrust suit by divesting. They had to divest 50% of the capacity of what was their best business. And everybody knew it was their best business. Now, it so happens it ran out after 10 or 15 years and I I knew some of the people that caused it to run out, but if you have a wonderful business, you're going to be subject to attack. So, you it's not a question of whether it's it was wonderful yesterday. It's it's a question of how long is it going to be wonderful. >> What really stood out to me in this interview is that Warren Buffett didn't reveal a new investing strategy. If anything, he proved that his philosophy hasn't changed at all. The biggest surprise was hearing Buffett confirm that he personally initiated Berkshire Hathaway's more than $31 billion investment in Alphabet. Many people assumed this was Greg Abel's first major move as Berkshire's new CEO, but Buffett made it clear that the idea started with him. At the same time, he emphasized that he and Greg Abel are in constant communication, that they approve each other's decisions, and that Greg is ultimately the final decision-maker. To me, that's an important message because it shows Berkshire's leadership transition is already operating exactly as intended. What I found even more interesting was how Buffett explained why Alphabet fits into Berkshire's portfolio. He wasn't talking about AI hype or exciting new technology. Instead, he brought the conversation back to something he has been teaching investors for decades, which is buying outstanding businesses that can earn high returns on capital over a very long period of time. He used American Express as the perfect example. While many banks generate returns on capital in the low teens, Buffett pointed out that American Express has consistently earned more than 30% without taking significantly more risk. That's the kind of business he wants to own. His goal isn't to find companies doing the newest or most exciting things. It's to find businesses that consistently produce exceptional economics year after year. I think that's a lesson many investors need to hear today. Too often we chase the next hot trend without asking whether the underlying business can actually generate outstanding returns for shareholders. Buffett reminded us that great technology doesn't automatically translate into a great investment. A great investment is one that continues creating value long after the excitement fades. He also credited Charlie Munger for reinforcing that lesson throughout their partnership. Charlie constantly reminded him that a business wasn't great simply because it was doing something fashionable or attracting headlines. If it couldn't generate real cash flow and even better, reinvest that cash at high rates of return, it wasn't nearly as valuable as people thought. I think that's especially relevant today because we're living through one of the biggest AI booms in history and many investors are assuming every company associated with artificial intelligence will automatically become a winner. Buffett doesn't see it that way. He pointed out that companies like Google are investing hundreds of billions of dollars into artificial intelligence infrastructure. That's an enormous amount of capital and his question isn't whether AI will change the world. His question is whether those investments will eventually earn returns that justify the cost. To me, that's exactly the right question because spending billions of dollars doesn't automatically create billions of dollars in shareholder value. Another part of the interview that really resonated with me was Buffett's criticism of Wall Street. He believes too many investors spend their time worrying about what will happen next quarter instead of asking what a business will look like 10 years from now. I completely agree. Some of the greatest fortunes in history were built by owning exceptional businesses and allowing them to compound over decades, not by reacting to every quarterly earnings report or market headline. Buffett also made an interesting point about today's AI race. He said many of these technology companies are now playing a game they don't necessarily want to play because they have no choice. If one company spends aggressively on AI while another falls behind, the competitive gap could become impossible to close. He even compared it to IBM, a company that once dominated its industry but eventually had to compete in an entirely different game as technology evolved. His message was simple, no business can afford to stand still and customers will always move toward whoever creates the most value. One of my favorite moments came when Buffett was asked whether he finally understands technology better than he did years ago. His answer was classic Buffett. He said there are still plenty of businesses he doesn't understand, then asked a simple question that perfectly summarizes his entire investing philosophy. Why should I invest in things I don't understand? That kind of discipline is one of the biggest reasons he's been so successful. He has never felt pressured to chase every trend. He waits until he understands the business, believes in its economics, and is confident the long-term opportunity outweighs the risks. So, my biggest takeaway from this interview is that Warren Buffett hasn't changed. The world around him has. His investment in Alphabet isn't a departure from value investing. It's another example of applying timeless investing principles to one of today's most important businesses. He is still looking for companies with durable competitive advantages, strong returns on capital, and the ability to compound shareholder value for many years to come. Now, let's dive in and talk about two undervalued stocks that I believe share many of the same long-term qualities Buffett looks for when making an investment. The first company on today's list is Broadcom, ticker symbol AVGO. If you've been following the AI revolution, you've probably heard plenty about companies building artificial intelligence models. But behind every AI model is an enormous amount of infrastructure, and that is exactly where Broadcom has become one of the most important players in the entire technology ecosystem. This is a business that most consumers rarely think about, yet many of the technologies shaping our future simply would not function without the products Broadcom designs. That is one of the reasons I find this company so interesting. Some of the best investments are businesses that quietly dominate critical parts of the economy while staying out of the spotlight. They become essential rather than fashionable. When that happens, they often develop durable competitive advantages that are very difficult for competitors to challenge. Broadcom fits that description remarkably well. Instead of chasing every new technology trend, Broadcom has built an impressive collection of semiconductor and infrastructure software businesses that solve mission-critical problems for enterprise customers. Once its products become deeply integrated into a customer's systems, switching to another supplier is often expensive, time-consuming, and risky. That creates a powerful competitive moat. This is exactly the type of business Warren Buffett often talks about. A company that serves an essential role, earns attractive returns on capital, generates strong cash flow, and benefits from customers who have every reason to stay loyal. Morningstar currently gives Broadcom its highest five-star rating and estimates the stock is trading at roughly a 41% discount to its fair value. For a company of this quality, that immediately grabs my attention because opportunities like this do not appear very often. Even more impressive is the fact that the stock has already gained about 13% this year, yet I still believe shares remain significantly undervalued. That tells you something important. Sometimes a stock can rise substantially and still be attractively priced if the underlying business continues improving faster than investors appreciate. I think that may be exactly what is happening here. The biggest reason is artificial intelligence. There is no question that AI has become one of the largest investment themes of this decade, but while many investors focus only on software companies, Broadcom sits in one of the most attractive positions because it supplies critical technology needed to make AI possible. Morningstar believes Broadcom's AI-related revenue could exceed $100 billion during fiscal 2027 before potentially reaching $200 billion in fiscal 2028. Those are extraordinary projections that illustrate just how large this opportunity could become if demand continues expanding as expected. I believe the market is underestimating the growth potential of Broadcom's XPU business. If you are unfamiliar with XPUs, think of them as highly specialized processors designed to accelerate artificial intelligence workloads. As AI models become larger and more sophisticated, demand for these specialized chips continues growing rapidly. I think Broadcom's own guidance may actually be conservative. That is a statement investors should not ignore. Wall Street usually becomes excited when companies raise guidance aggressively. Here we have analysts suggesting Broadcom itself may be understating what is possible over the next several years. If they are correct, future earnings expectations could continue moving higher. One thing I really like about Broadcom is that management is not relying on a single customer or one product to drive growth. The company has built an ecosystem of businesses that complement each other. Its semiconductor operations continue benefiting from AI infrastructure spending while its software businesses provide recurring revenue streams that help strengthen overall financial performance. That combination creates diversification inside one company. Diversification does not always mean owning dozens of different stocks. Sometimes it means owning one exceptional business with multiple engines of growth. Broadcom appears to fit that description. Another reason I believe Broadcom deserves serious consideration is because the AI infrastructure buildout is still in its early stages. Many investors talk about artificial intelligence as though the opportunity has already peaked. I actually think we are still closer to the beginning than the end. Companies around the world are continuing to invest enormous amounts of capital into AI infrastructure. As long as that trend continues, businesses providing the essential hardware behind those investments stand to benefit. Broadcom occupies a critical position within that value chain. Broadcom possesses a wide economic moat built around its chip design expertise and the switching costs associated with many of its software products. Those advantages make it harder for competitors to take market share and help support attractive profitability over long periods of time. Another characteristic that long-term investors should appreciate is Broadcom's ability to convert revenue into cash. Cash flow gives management flexibility. It allows the company to continue investing in research, expand strategically, reward shareholders, and strengthen its competitive position over time. That financial strength becomes especially valuable during periods of market uncertainty when weaker competitors may be forced to cut spending. One thing I always ask myself before buying a stock is whether this business is likely to become more important or less important over the next decade. For Broadcom, I believe the answer is becoming increasingly clear. As artificial intelligence expands across enterprise software, cloud computing, health care, manufacturing, financial services, and countless other industries, demand for advanced computing infrastructure should continue growing. Broadcom is positioned directly in the middle of that trend. Of course, no investment is without risk. Technology evolves quickly, competition never stands still, customer spending can fluctuate, market sentiment can change dramatically in a short period of time. Those realities apply to every technology company. But when I weigh those risks against Broadcom's competitive advantages, financial strength, AI growth potential, and my estimate that the shares trade at a substantial discount to fair value, I think this is exactly the type of company long-term investors should be researching carefully. Sometimes the best opportunities appear when investors become overly focused on short-term uncertainty while overlooking the long-term picture. Broadcom may be one of those opportunities today. If this resonates with you, you're exactly who this channel is for. Please hit the like button, share the video, and leave your thoughts in the comments. Subscribe to the channel so you don't miss out on the next important financial investing update. Remember to do your own research before you invest in any stock. The second undervalued stock on today's list is Microsoft, ticker symbol MSFT. Few companies have managed to reinvent themselves as successfully as Microsoft. For decades, it has remained one of the most important businesses in the global economy by constantly adapting to where technology is heading instead of clinging to where it has been. That ability to evolve is one of the biggest reasons I believe Microsoft continues to deserve a place in a long-term investment portfolio. When people think about Microsoft, they often think of Windows or Microsoft Office. Those products are certainly important, but they only tell part of the story. Today's Microsoft has become deeply embedded in how businesses operate around the world. Its software helps organizations communicate, collaborate, manage data, build applications, protect against cyber threats, and increasingly integrate artificial intelligence into everyday workflows. In many ways, Microsoft has become part of the operating system for modern business. That creates an incredibly powerful competitive advantage. Microsoft has a wide economic moat supported by both its cost advantages and powerful network effects. Think about how difficult it would be for a large organization with thousands of employees to replace Microsoft's software ecosystem overnight. The cost would be enormous. The disruption could last months or even years. Employees would require retraining. Existing systems would need to be rebuilt. Productivity could suffer during the transition. That creates very high switching costs. When customers become deeply integrated into an ecosystem, they are much more likely to remain loyal. That is exactly the type of business Warren Buffett loves, a company that customers continue using because changing providers would be far more expensive than staying where they are. That competitive advantage becomes even stronger when millions of businesses around the world are using the same products. The larger Microsoft's ecosystem becomes, the more valuable it becomes for existing customers and new customers alike. This is the network effect in action. Morningstar currently gives Microsoft its highest five-star rating and estimates the shares are trading roughly 35% below their fair value. That may surprise some investors because Microsoft has long been viewed as one of the highest quality companies in the market, but even exceptional businesses occasionally become attractively priced when market sentiment turns negative. businessinsider.com This year has certainly tested investor confidence. Microsoft shares have declined about 17% year-to-date. Whenever a company of this quality experiences a significant pullback, I think it deserves another look. The important question is not whether the stock has fallen. The important question is whether the business itself has become weaker. Based on my analysis, the answer appears to be no. In fact, the firm still expects Microsoft to deliver approximately a 15% compound annual revenue growth rate over the coming years. That is remarkable for a company already operating at Microsoft's enormous scale. Growing at that pace when your revenue base is already measured in hundreds of billions of dollars is no easy task. It speaks to the strength of Microsoft's business model and the opportunities still ahead. Artificial intelligence is obviously one of those opportunities. While many companies are still trying to figure out how AI fits into their future, Microsoft has positioned itself to benefit across multiple areas of its business. That is something I find particularly attractive. Rather than relying on one breakthrough product, Microsoft has numerous ways to monetize artificial intelligence. It can enhance productivity software, it can strengthen enterprise services, it can improve developer tools, it can expand cloud offerings, it can introduce premium AI-powered features that businesses are willing to pay for because they increase productivity and save time. That creates multiple paths to long-term growth. I believe this diversified approach gives Microsoft meaningful upside if artificial intelligence delivers on even a portion of its enormous potential. In other words, Microsoft does not need one single AI product to dominate the market. The company simply needs AI to improve the value of the products businesses already rely on every day. That is a much lower hurdle. I also think Microsoft's strategy is more durable because it focuses on solving real business problems. Companies are not adopting AI simply because it is exciting. They are adopting it because they want employees to become more productive, automate repetitive tasks, analyze information faster, and make better decisions. Microsoft already has trusted relationships with millions of organizations around the world. That gives it an incredible advantage when introducing new AI-powered capabilities. Businesses are far more likely to adopt new tools from a company they already trust than completely rebuild their technology infrastructure around an unfamiliar provider. That trust has taken decades to build. It cannot easily be replicated. Another quality I appreciate is Microsoft's financial discipline. The company generates tremendous cash flow, maintains an exceptionally strong balance sheet, and continues investing aggressively in future growth while still rewarding shareholders. Very few companies have the financial flexibility to do all of those things simultaneously. That financial strength also provides resilience during economic slowdowns. When markets become uncertain, companies with strong balance sheets often emerge even stronger because they they continue investing while weaker competitors pull back. That has been one of Microsoft's greatest strengths over the years. It continues building for the future regardless of short-term market volatility. As investors, that is exactly the kind of leadership we should be looking for. Now, does this mean Microsoft is guaranteed to outperform over the next decade? Of course not. No investment comes with guarantees. Competition remains intense. Technology changes quickly. Artificial intelligence will continue evolving. Economic conditions can always create short-term challenges. But when I look at Microsoft's competitive moat, recurring revenue streams, dominant position within enterprise software, expanding AI opportunities, financial strength, and my estimate that the stock trades at a meaningful discount to fair value, I believe the long-term investment case remains very compelling. Sometimes investors make the mistake of assuming a great company cannot become a great investment because everyone already knows its name. History has shown that is not always true. The best businesses often continue creating enormous shareholder value for years because they consistently adapt, innovate, and deepen their competitive advantages. Microsoft has repeatedly demonstrated that ability throughout its history. For long-term investors willing to look beyond today's headlines, this recent pullback may represent an opportunity rather than a warning sign. That is exactly why Microsoft has earned a place on today's list of undervalued stocks. This video is brought to you by Value Stocks Investing Master Course. If you're looking to grow your wealth by investing in solid undervalued stocks, but not sure where to start, I created the Value Stocks Investing Master Course to teach you how to identify great companies, make smart investment decisions, and build a portfolio that lasts. Click the link in the description and pinned comments to get the course today and take control of your financial future. Today we looked at two companies that I believe are trading significantly below their intrinsic value. Broadcom offers enormous upside through the continued expansion of artificial intelligence infrastructure and semiconductor demand. Microsoft combines one of the world's strongest competitive moats with multiple opportunities to monetize artificial intelligence across its existing ecosystem. Both businesses generate significant cash flow, both have durable competitive advantages, both continue investing heavily in their future, and both appear to be trading at meaningful discounts to their estimated fair value. If you want exclusive stock tips, in-depth analysis, real-time trade alerts, and free investing guides, join the Stocks Galore Patreon today and take your investing game to the next level. Our members get full in-depth analysis on most of the stocks mentioned here. Head over to patreon.com/stocksgalore and become part of our growing community of smart investors. Link is in the description. Now, I'd love to hear from you. Between Broadcom and Microsoft, which business do you believe has the stronger long-term competitive advantage, and which stock would you be more comfortable holding for the next 10 years? Let me know your thoughts in the comments below. Do not forget to like the video, share your thoughts in the comments, and subscribe so you do not miss the next important investing update. Thanks for watching, and I will see you in the next one.