The Oracle's $37.8 Billion Bet: Why Berkshire Sees What the Market Doesn't in Alphabet's AI Spending

Berkshire boosts Alphabet stake to $37.8B amid AI capex surge; cloud revenue jumps 82%, and a 3x oversubscribed kangaroo bond signals market confidence.

When Warren Buffett's Berkshire Hathaway quietly added 83 percent to its Alphabet stake during the second quarter, it wasn't just another portfolio adjustment. The move — bringing the holding to roughly 106 million shares worth about $37.8 billion as of June 30 — vaulted Alphabet into Berkshire's third-largest equity position. For a firm synonymous with capital discipline, that's a statement that cuts against the prevailing Wall Street narrative.

The market's skepticism is understandable on the surface. Alphabet's capital expenditure guidance for 2026 now stands at $195 billion to $205 billion, a sharp upward revision from the previously communicated $180 billion to $190 billion range that CFO Anat Ashkenazi delivered alongside second-quarter results. The stock has shed 3.1 percent since that announcement, a pullback that reflects near-term digestion of rising capital costs rather than fundamental doubts about the business model.

Yet the counter-signals are mounting. The cloud division, the most direct beneficiary of those AI investments, posted revenue of $24.8 billion in the second quarter — an 82 percent surge that demonstrates the spending is already translating into earnings power. And Berkshire's conviction, which Barron's noted includes at least $10 billion of shares acquired directly from Alphabet through a private placement disclosed in June, suggests the long-term return on that capital outlay is being underestimated.

A Kangaroo Bond That Says More Than the Share Price

The most telling recent development may have flown under the radar. Alphabet tapped the Australian bond market for the first time last Wednesday, raising 5.5 billion Australian dollars across maturities of three, five, ten, and twenty years. Investor demand was emphatic: bids topped 18 billion Australian dollars, more than triple the amount placed, according to Reuters. The twenty-year tranche carried a coupon of 6.9 percent.

Bloomberg characterized the issuance as part of the financing for Alphabet's AI investment push, and Reuters noted that Alphabet became the first AI hyperscaler to refinance in the Australian debt market. The oversubscription is a clear vote of confidence — a company that can venture into a new bond market and attract three times the offered volume isn't exactly strapped for cash, despite the mounting investment burden.

That said, the broader credit environment bears watching. Reuters reported that the industry-wide boom in AI-related corporate bonds is increasingly testing investor appetite. Some fund managers continue to rate Alphabet as creditworthy despite the growing wave of issuance — a vote of confidence that isn't automatic given the scale of infrastructure spending on the horizon.

The Legal and Regulatory Headwinds

Australia is proving to be a mixed bag for Alphabet. Even as the company raises capital there, the government passed legislation on Thursday introducing a "News Bargaining Incentive" — a levy of 2.5 percent on advertising revenue for affected companies if Google fails to strike commercial agreements with local media outlets.

Back in the United States, the antitrust defeat handed down in early April continues to weigh on sentiment. That overhang, combined with the recent leadership shuffle at Google DeepMind — Demis Hassabis stepped down as chief in favor of Koray Kavukcuoglu two weeks ago, a move that sent the stock down 4 percent on the announcement day — has contributed to elevated volatility. The 30-day volatility reading stands at 40 percent.

Diverging Institutional Views

Berkshire isn't the only institutional player making moves, though the direction of travel differs sharply. Tiger Global Management cut its Alphabet position by 45.4 percent to 5.81 million shares as of the same June 30 cutoff, according to regulatory filings. The contrasting approaches underscore the genuine debate over whether Alphabet's AI spending spree is prudent investment or capital destruction.

Smaller developments add texture to the picture. Google agreed to acquire internal business data from bankrupt Spirit Airlines for $10 million, pending bankruptcy court approval and despite objections from the flight attendants' union, with the data earmarked for product development and AI training. The company also launched its Pixel 11 lineup on August 20 and, two weeks ago, rolled out Gemini 3.7 Flash — a model aimed at programming and business process automation — across more than 160 countries via Gemini Spark. On Tuesday, Google extended Gemini Enterprise with specialized tools for the legal profession, including a plug-in with integrations and AI agents for legal and administrative tasks.

A Consolidation, Not a Reversal

The share price tells a story of digestion rather than deterioration. At €297.50 at Tuesday's close, down 0.4 percent on the day, the stock sits roughly 15 percent below its 52-week high of €350.75 reached in May. But it remains 68 percent above its yearly low, and the twelve-month gain stands at a robust 67 percent.

That consolidation following the earnings report and the antitrust setback looks less like a trend reversal and more like a pause for breath after a powerful rally. Between the multibillion-dollar investment risks and the unmistakable confidence signals from institutional heavyweights, the weight of evidence still favors the long-term thesis — particularly when the world's most famous value investor is putting $37.8 billion behind it.