Warren Buffett Might Prefer Apple Over Alphabet Stock, But Wall Street Disagrees
In a recent interview with CNBC, Berkshire Hathaway (BRK.A) (BRK.B) Chairman Warren Buffett said that he initiated the position in Alphabet (GOOG) (GOOGL) last year. Notably, given Buffett’s reluctance to buy tech companies, the admission came as somewhat of a surprise. While the Google parent has since grown to become among Berkshire’s top holdings following…
In a recent interview with CNBC, Berkshire Hathaway (BRK.A) (BRK.B) Chairman Warren Buffett said that he initiated the position in Alphabet (GOOG) (GOOGL) last year. Notably, given Buffett’s reluctance to buy tech companies, the admission came as somewhat of a surprise.
While the Google parent has since grown to become among Berkshire’s top holdings following a $10 billion investment last month, the “Oracle of Omaha,” who in 2019 admitted to a mistake in not buying Alphabet, is not that big a fan of the company, unlike Apple (AAPL), which he has praised on more than one occasion. Referring to Alphabet, in the interview, Buffett said, “I would say that I don’t like it as well as at least four or five other businesses that we own.”
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Notably, Apple remains Berkshire’s largest holding even though the conglomerate has sold the bulk of its stake, apparently for tax reasons. Meanwhile, while Buffett might prefer the iPhone maker over GOOG, I find the latter a better buy for now.
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Apple Stock Hits Record Highs
Apple hit a record high yesterday, July 15, and its market cap is approaching $5 trillion. Notably, while Apple was the first U.S. company to hit market caps of $1 trillion, $2 trillion, and $3 trillion, Nvidia (NVDA) became the first $4 trillion company and subsequently a $5 trillion behemoth. So far, no other company has been able to command a market cap of $5 trillion.
One of the reasons Buffett seems to prefer Apple over GOOG is because of the latter’s massive capex. The nonagenarian has historically preferred companies that don’t use a ton of capital. Alphabet would also have fit into that category, but thanks to the massive capex towards building artificial intelligence (AI) infrastructure, U.S. tech giants are now deploying more capital than at any other time in modern history.
While U.S. tech companies were once known for their fat-free cash flows and generous share buybacks, they have instead been on a capital-raising spree—both through debt and equity—to fund their burgeoning capex.
Apple, meanwhile, largely stayed away from the AI spending spree. Instead, the company has been looking at partnerships to bring AI to its devices. In China, Alibaba’s (BABA) Qwen model is set to be integrated on Apple devices, which would help the U.S. tech giant bring the flagship “Apple Intelligence” features to its second-biggest market.
In the U.S., Apple has partnered with Google and would use its Gemini model for Siri. It also partnered with OpenAI, but the relationship with the ChatGPT parent has since deteriorated, and Apple has filed a trade secret lawsuit against the company.
On the chip front, Apple has signed a multi-year deal for custom silicon with Broadcom (AVGO). It is also reportedly working with Intel (INTC), wherein the once-iconic U.S. chip giant would manufacture some of the chips for Apple devices. Apple is also said to be exploring acquiring AI chip companies.
Alphabet, on the other hand, is working on custom silicon, which would not only help it reduce reliance on Nvidia’s chips but also become a significant revenue source through third-party sales. Citizens JMP, for instance, expects Alphabet’s tensor processing unit (TPU) sales to reach about $3 billion in 2026 and $25 billion in 2027.
AAPL Stock Forecast
While Buffett might prefer Apple over Alphabet, Wall Street analysts believe otherwise. AAPL stock has a consensus rating of “Moderate Buy” from the 42 analysts polled by Barchart and has already run ahead of its mean target price of $315.63. Alphabet, on the other hand, is rated a “Strong Buy,” and importantly, none of the analysts actively covering the stock rate it as a “Sell,” while two analysts rate AAPL a “Strong Sell.” Alphabet’s mean target price sits at $434.22, which is over 17% higher than current levels. From a valuation perspective, AAPL trades at a forward price-to-earnings (P/E) multiple of 36.29x while GOOG trades at 24.49x.
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To be sure, Apple has historically traded at a premium to Alphabet, and for good reasons. However, Alphabet brings prospects of higher growth than Apple. Along with stellar growth in its cloud business, which is growing way faster than two of its bigger rivals, Amazon (AMZN) and Microsoft (MSFT), in that order, TPUs and graphics processing units (GPUs) are another long-term growth driver as their third-party sales gain traction.
Overall, while both Apple and Alphabet are quality companies with significant moats, at these levels, I would side with the analyst community and prefer GOOG over AAPL, as I find its risk-reward more favorable.
On the date of publication, Mohit Oberoi had a position in: AMZN, MSFT, NVDA, GOOG, BABA. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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