Google stock: why Buffett invested $4 billion amid AI fears

0:00Warren Buffett just did something that nobody saw coming. Not even Winston. And he's got a big nose. The man who famously said, "Tech companies are outside my circle of competence" just dropped $4 billion on Google stock. Yes, you heard that right. One of the Mag 7 tech giants. That certainly wasn't on my bingo card for this year.

0:21But here's what makes this extraordinarily interesting. Everyone's screaming that Google's search monopoly is being destroyed by AI, ChatGPT. AI bubble fears are everywhere. The stock market is at all-time highs. Yet Buffett is buying a tech stock in this moment.

0:40This could literally be the most important investment signal of the year. When the Oracle of Omaha moves $4 billion into tech stocks during bubble fears, you need to understand why. My promise to you is that by the end of this video, you understand exactly why Buffett made this move. What the data really shows about Google and most importantly the practical strategies you can use as retail investors to profit from this insight even if you can't afford to drop $4 billion on a stock like Buffett.

1:12My name is Felix Prehn. I'm an ex-investment banker. I'm also the founder of the GOAT Academy. We've taught over 20,000 students so far how to invest better. I'm also the co-founder of trademission.io where we make news and Wall Street quality data available to you. And most importantly, I have a very very smart golden retriever.

1:31But we literally just did a master class on contrarian value investing and this is kind of it. So if you want to learn more before we dive deeper into this, let me mention one thing for you quickly. It is Black Friday, my friends, and it means people do silly things and do incredible offers and give value away they normally wouldn't give away. And we're doing exactly that.

1:53So if you're interested to learn from the people that I learned from, my mentors, Wall Street goats who worked at Goldman's and Deutsche and Bear Stearns and Merrill and all the big banks, you want to learn from those people directly, you're interested in that, you're serious as an investor, then what I can offer you is a free strategy call with my team where you'll find out more about what that would look like to learn from those mentors directly that I learn from. And you get the large chance to also lock in our Black Friday deal. But I'm not going to bore you to death with the details. The link down below, phoenixfriends.org/freedom, because my hope for you is to get more freedom.

2:30Now, let's dive a little bit deeper here into the Berkshire Hathaway 13F filing, which I'm sure you've read in great detail. And it is now literally Buffett's 10th largest holding, which is pretty significant. He isn't going into this and saying, "Yeah, we're going to nibble a little bit on this." That's some serious money even for Buffett.

2:51And it matters because Buffett has always avoided high growth tech. He missed Amazon. He was late to Apple. He's always said he doesn't understand the business model, so therefore he won't invest. For him to buy Google now, it means something fundamentally has changed in his thinking. And the timing seems bizarre, right? With market highs, everyone's talking about the AI bubble. Google stock's gone vertical in the last 12 months and AI ChatGPT is supposedly killing Google's search monopoly, yet the valuation is at dot-com bubble levels.

3:25So this is when you'd think Buffett would be selling, not buying a tech stock. And famously Buffett and Charlie Munger talked about this a lot. They missed Google in 2015 and they were very upset about it. Buffett has publicly admitted it was a mistake not to buy Google in 2015. So this isn't just a random tech bet. Is Buffett correcting a decade old mistake? Has he learned from the past and he's not going to let Google slip through his fingers twice?

3:54So what does he know about Google that we don't know? Why is he buying at the top of a bubble? Or well, maybe he's seeing something that everyone else is missing. So the first thing to understand is the legitimate concerns around Google. Google has maintained a 90% market share in search for the last decade. And Google, everyone says that it's a total, a monopoly, worldwide monopoly. The closest competitor is Bing, but Bing with 4%, right? Bill's little plaything. Some people say it's very large. Now all a matter of perspective, it's not a competition. It's irrelevant, right? So yeah, Bill's little thing is irrelevant.

4:38But since 2022 when ChatGPT came out, they now have 100 million users. Well actually they reached 100 million users in just 2 months. Fastest growing consumer application ever. And people are turning to AI chatbots like ChatGPT, Claude, Perplexity and Grok and everything to get answers without having to click on a link. It's tedious to read through all that stuff.

5:04So it's a threat to Google's business model. It's a direct threat to their advertising model. Google makes money when people click on ads. If people are getting their answers from ChatGPT without clicking on anything, Google can't charge advertisers. So the language of search is changing from search to ask and you shall be answered, right? Fundamental shift in user behaviour that's happening very very quickly.

5:26So the bear case is simply Google's moat is being disrupted by AI and we're in a bubble, right? Time to sell, right? But there is a contrarian question and this is what Buffett always does that most investors don't. He looks at the financial data. Well, everyone says Google is dying. But what do the actual numbers say? Let's dig into some of the numbers.

5:55Now, if you are afraid of numbers and data and statistics, this is not the channel for you. We actually go fairly deep here, but we also want to keep it simple enough so everybody understands it. So let's compare Google's financials from the moment that ChatGPT was launched. This was the GPT launch, right? This is now. So in December 2022, ChatGPT launches and Google makes about $280 billion in revenue. Profits are about $75 billion.

6:26Not bad, right? Of course, ChatGPT then destroyed Google's advertising business. Well, except it didn't, because Google is now bringing in about $380 billion in revenue and give or take $125 billion in profits. Margin, just this little thing down here, is also improved. So if Google's moat was being destroyed, you'd expect to see less revenue, shrinking margins, and cost cutting, right? Instead, we're seeing the opposite.

6:54Search revenue particularly is going to the moon, right? 43% growth in search revenue. This is the AI disruption apparently. So Google's moat is actually strengthening, not weakening. You will also notice when you type in anything into Google.

7:15So let's go to Google. Say we type in "what makes golden retrievers happy." Then you'll see at the top here is the little AI answer, right? And a lot of people, I'm sure, are now looking at that because it just gives you the answer without having to click through a bunch of random stuff. Although watching these videos seems rather appealing. Maybe we should just do that.

7:38So, we're going to look at the stock chart in a second as well because that's important. But this is a business that's getting better. It's getting more profitable. 69% increase in profits over the last 3 years since ChatGPT came out. Free cash flow is massively improved, 50% up or something like that. The balance sheet, well, they have about $100 billion in cash. Well, about $73 billion in net cash if you take the debt out. So they could pay off all their debt tomorrow and still have $70 billion plus in cash.

8:08So they basically have insane resources to compete with Sam Altman and anybody else who's throwing things at them, right? This is a fortress. You can see why Buffett likes it. And then here is the real, and it's an unfair comparison, but it is the comparison right now. Yes, ChatGPT has hundreds of millions of users. Yes, it's growing very fast and yes, it's changing our behaviour.

8:34But what no one's talking about is that OpenAI is burning cash at a staggering rate, right? They're expected to burn about $15 billion through 2029. So yes, they got revenue, but they're spending way more than their revenue. And that burn rate jumped $80 billion just by the way because it's insanely expensive to run these AI models.

8:58Now if you look at that comparison, you look at OpenAI $12 billion revenue, you look at Google $385 billion revenue, one's burning $5 billion, the other one is generating $70 billion in free cash flow. Well, one company's printing money, the other one is burning it just to stay competitive, right? Yes, OpenAI has Microsoft backing and other investors, but it shows a fundamental difference in their current positioning.

9:23I would expect OpenAI will be profitable at some point. It's doing what startups do best and it's burning money right now. But Google has integrated their AI model, their Gemini, which is what I just showed you, directly into search, right? Which is why you get these smart little things here about the top now, right? Dive deeper in AI mode. What does that do? And then you go into their AI directly. Cool. And then you get a bit of a mix of links and the answer. So everybody's happy. So you get ChatGPT-like answers right at the top of Google.

9:57Google also has DeepMind which is one of the world's leading AI research labs. They have custom TPU hardware which is chips designed specifically for AI workloads. They don't have to pay Nvidia for that. And they have decades of search data to train those models. $100 billion in cash to invest in development. So they have time, resources, talent and the financial data shows they are actually winning. They are not losing.

10:21Now Google here isn't screaming bargain bargain buy me now. The stock trades at a 27x PE, not cheap. When Buffett bought Apple, it was trading at about 16, right? So Apple

10:33Was about 16x. There's not a super value play, but this is a great quote from Warren. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. And I think that's often where retail investors go wrong because growth will make this PE cheap in the long run as long as they keep growing. It isn't really about now. It is about the longer term.

10:58And that's the way Buffett's thinking. And that's pretty amazing for a guy in his 90s, right? He's still thinking long term. How cool is that?

11:06So if you look at the valuation, the PE ratios of some of the big tech stocks, well Alphabet which is Google is about 25. Microsoft is about 28. Nvidia is 33. So Alphabet, which is Google, is actually the value play in big tech right now.

11:26Now, a warning. One of the reasons Buffett will buy something like Alphabet, buy Google, is because he's constrained to buy mega cap companies because he does not like to own more than 10% of a company generally. And most companies, if you give him $4 billion, you own 10% of that business, right? Regulatory issues come with that. So he can't just go out and find some cheaper small cap stock with potentially better returns. You just can't buy it. That's the problem of having very, very large portfolios.

11:57So in a generally pretty highly valued market at his scale, Google is basically a high quality business at a reasonable price. Right? So this isn't some crazy home run. I don't think it's a solid base hit that he's investing in. It's better than sitting in cash or in treasuries because he knows that that train is coming to an end. Interest rates are coming down.

12:19But another thing to look at is just the amount of money flowing into AI. It's estimated $3 trillion is going to go into AI infrastructure, data centres, chips, cloud computing, the whole ecosystem. And when you have that much money flowing into one sector, you can't ignore the sector, right? Even if you think valuations are stretched, the momentum is undeniable. And as one analyst put it, Buffett just couldn't fight the tape any longer.

12:44Now, the tape is basically what the stock market's doing. And if we look at that very briefly here on the stock chart, not everybody is a chart technician, but you don't need to be to spot these kind of patterns here that we're seeing. Let me just get a pen that you could see.

13:01If you go back to early 2025, this is early 2025. This is January. You had a pattern here that I talk about a lot. If you ever attended one of my trainings, I call it a heartbeat pattern, right? We popped out of it a little bit and then we gapped down. We dropped down here through that 50-day moving average line. We dropped through the 150-day moving average line, the purple line there. And that was a real bad moment for Google.

13:24But then what happened is you will notice that just watch the yellow line there. That line bottoms out here, which is always a signal that you want to start paying attention to. And then it starts grinding its way up very nicely. It crosses over the 150 here. That means it becomes investable for non-traders.

13:44And then if you just connect the highest from here to right about there, you actually get yourself a very sweet entry point. So this is where it screams buy. And then you get a gap up because everybody else saw that too. You can see the massive volume pouring in. Big money pouring into this. That may have been Buffett, may not have been Buffett. We don't obviously know the exact timing of that trade.

14:03And then you get a second chance here as you typically do. That was your second chance to buy. And I'm not doing that in hindsight. People always say that, "Oh, you can only do this in hindsight." No, it actually works because you can see the pattern, you can see the behaviour, you can see where the money is flowing into a stock. And once again, you see significant volume down here as it really moves its way up.

14:23So right now it's a little extended. You could wait for a pullback or you could wait for another consolidation or you could obviously just do whatever the heck you want. But I can see from a technical point of view this is happening. And I saw the same thing on Buffett's previous recent buy which was UNH, which we also bought slightly before the announcement came out. And again that was on the basis here, I got in 299 and it's pulled back quite a bit actually, hasn't done very much. And again that was on the basis of technicals.

14:57So I'm starting to think that as Buffett has less of an active role in Berkshire, maybe the technicians are taking over a little bit there, which would make a lot more sense. So it's interesting to see the last two buys I see from Buffett align with the technical trading that we are usually used to more from the traders rather than from the value investors.

15:17But Buffett is also an amazing guy because he learns, right? He missed Amazon, he missed Google. He was late to Apple and he was always like, tech, I don't understand it. But he also understands the world is changing and that AI is the biggest tech shift since the internet. And by buying Google, Buffett is basically learning from his past mistake. He's getting exposure to AI but in a profitable, cash-rich company. He's riding the trillions of dollars of money that's pouring into AI but he's buying it at a reasonable valuation. He isn't going into something super high risk. Smart, adaptive investing from a 94-year-old who's still learning and evolving.

15:58So if you want to follow in those footsteps, there are some clear lessons here. Don't chase the unprofitable AI hype. Focus on companies that are making money, profitable companies, not burning cash, right? Google generates $70 billion in free cash flow, real money you can count on.

16:13And then find value within sectors. Don't just go for the latest hype, right? One way to establish that is obviously looking at free cash flow. PE ratios will only ever get you so far, but you can compare them within a sector. That makes some sense. Why pay 35 times for Nvidia when you can get Google at 25? It's a reasonable conclusion to jump to. Not telling you to do that, but I'm just saying I can see why he's doing that.

16:38And then don't ever let the narrative, the story, the noise, the FOMO affect your data-driven, your rules-driven process. That's what it's all about in my humble opinion. That's what we teach. We teach rules. We don't teach FOMO. And that's what my mentors have always taught me. And I think that is why the big Wall Street firms are still there because they have a rule book.

17:02Have you got a rule book? If you don't, think about getting yourself one. Think about getting yourself a mentor. That's how these guys learn. Buffett, by the way, didn't wake up as genius, right? Do you know who Buffett learned from? You know who his mentor was? Does the name Benjamin Graham ring a bell? He's written a very large, very heavy book that'll put you to sleep, but smart man. Obviously, he taught Buffett. Everybody had a mentor. Everybody has a mentor. Everybody who's doing something well has learned it from somebody.

17:26So the question is, is that something you want to do? In which case, I'm offering you access to my mentors, my Wall Street guys, and you can book a free strategy call with us at felixfriends.org/freedom to find out more about how that works and also lock in the crazy Black Friday offer that we're running.

17:40So yeah, just a quick summary here on the screen of what Google is really all about. And then for you, look, this isn't a crazy bet as some people are saying. I think it's a very smart bet. It's a business that has a monopoly. He likes that, has a massive moat. The moat's actually getting stronger. And if you wait long enough, no matter what the valuation is at present, it's very likely you're going to make money out of it. But you got to be able to wait long enough and that's really the challenge for most people.

18:08So contrarian investing at its finest. That's the way I would sum that up. If you got some value out of this, well, get yourself some more value by booking a free strategy call with my team, felixfriends.org/freedom, and share it with people. Share this video with people. That would be the number one thing you can do if you enjoy our content here is just share with more people. It's the biggest signal to the algorithm and also to the people you're sending it to that there is some value in this. And I wish you all the best.

18:36Today we're going to walk through the 6 levels of retirement wealth. What life looks like at each level, the lifestyle markers, the risks, and most importantly, the one