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Warren Buffett’s latest investment, Alphabet (NASDAQ: GOOG) stock, has shot up recently. Over a six-month timeframe, it’s up almost 90%. Now, I’m a fan of Alphabet but when the stock hit $326 in November, I decided to sell around a fifth of my holding.
Here’s why I made this move.
A legendary company
The owner of Google and YouTube, Alphabet’s a world-class company. And right now, it’s doing a lot of things right.
Just look at what it’s done in the generative AI space. Not only has it enhanced its search offer with tools like AI overviews and AI mode, but it’s also released powerful new AI applications such as Gemini 3.0 and Nano Banana Pro, which are on par (if not better) than products from ChatGPT owner OpenAI.
It’s worth noting here that Gemini now has around 650m monthly active users, so it’s now really starting to compete with ChatGPT.
The massive catch-up in generative AI is only part of the story here however. Another huge attraction is the company’s cloud computing division and powerful chips.
Right now, Alphabet’s cloud division is growing faster than Microsoft’s and Amazon’s. Meanwhile, there are rumours that Meta is looking at using Google’s high-powered tensor processing unit (TPU) chips for AI.
Add in the fact that Alphabet has a streaming platform (YouTube) that generates almost as much revenue as Netflix and a self-driving taxi division (Waymo) that generates far more revenue than Tesla’s robotaxis, and there’s a lot to like. Ultimately, there’s a ton of long-term growth potential here.
Why am I selling?
Why did I sell some stock then? A few reasons. One was the speed of the share price rise.
Back in May, the share price here was around $150 and the market-cap was around $2trn. Today however, the share price is above $300 and the market-cap is near $4trn. That’s a huge share price rise, and a massive increase in market-cap, in a short space of time. That spooks me a bit.
Another was the valuation. After the recent share price jump, Alphabet’s price-to-earnings (P/E) ratio is about 30. Again, that unnerves me a little too. Over the last five years, the P/E here has typically been between 18 and 22.
The third reason was just risk management. After its jump to $326, Alphabet was the largest holding in my portfolio (I first bought near $65).
I thought it was prudent to take some profits and rebalance my portfolio. Because while the company has momentum at the moment, there are still plenty of risks for investors (competition from OpenAI and Big Tech companies, a slowdown in digital advertising spending, weakness in AI stocks, etc).
Better opportunities in the market today
I’ll point out that even after selling a fifth of my holding, Alphabet’s still one of my largest positions (currently, my fourth-largest individual stock holding).
I remain excited about the long-term growth story here. I just don’t see the stock as a buy today – right now I’m focusing on other opportunities in the market.
