Warren Buffett is concerned.
The legendary investor criticized the market’s reckless speculation and the huge cost of building AI in a rare interview with CNBC on Wednesday.
“It’s hard to find value when everyone likes to gamble,” said the well-known disciplined bargain hunter.
Berkshire Hathaway’s 95-year-old chairman, who stepped down as CEO at the turn of the year, said it has been difficult to find good deals in recent years as the market has shifted in favor of speculators.
“Humans love gambling, so you can make more money by actually training gamblers than by training investors,” he said.
Business Insider asked several of Buffett’s closest followers for their thoughts on his message. Buffett’s secretary did not respond to a request for comment.
“Buffett is warning investors not to avoid AI, but to be wary of speculation becoming the dominant force in pricing,” said Adam Schwartz, principal investor at Black Bear Value Partners.
“I’ve always believed that ultimately fundamentals matter, even if it doesn’t seem like it’s going to last,” business icon Schwartz continued, adding that in the age of AI, investor capital is “chasing excitement, not cash flow.”
David Kass, a finance professor at the University of Maryland who blogs about Berkshire, told Business Insider that Buffett seems “concerned” about “troubling” trends in the market, such as increased use of derivatives and shrinking maturities.
But Kass said Buffett’s “hypercautiousness” — Berkshire’s record $380 billion in cash at the end of March — has prevented him from taking advantage of the “soaring stock market of the past few years.”
alphabet puzzle
In an interview, Buffett pointed out that so-called hyperscalers such as Meta, Microsoft and Alphabet are spending hundreds of billions of dollars on microchips, data centers and other infrastructure to win the AI race.
“That’s real money,” he said. “That’s the game they’re playing now. They weren’t playing that game using computer software.”
Mr. Buffett appears to be “troubled” by these large expenses, Mr. Kass said, perhaps because the cash flow previously used for stock buybacks is being eroded, increasing the prospect that companies will be forced to raise outside capital and spend large sums of money for little return.
But Buffett also told CNBC last year that he decided Berkshire should invest in Alphabet. Berkshire increased its position to nearly 58 million shares in the nine months ended March 31, and now has a stake worth $20.5 billion.
Berkshire, led by Buffett’s successor as CEO Greg Abel, invested another $10 billion in Alphabet in a private placement in June. The surprise agreement increased the size of the stakes to nearly $31 billion as of Thursday’s close, assuming no changes. This makes Alphabet the third-largest holding in Berkshire’s stock portfolio, ahead of Coca-Cola and behind Apple and American Express.
“I think they’re more likely to be a winner based on their track record than probably 90%, 95% of the products that are commercialized through Wall Street,” Buffett said of Alphabet.
Brett Gardner, author of “Buffett’s Early Investing,” told Business Insider he was “a little perplexed” that Buffett would invest in Alphabet because he’s concerned about the cost of building AI.
“I think you need to have some idea of the return on these investments before you can bet on Google,” Gardner said, “but Buffett doesn’t seem to have a strong view on that.”
Buffett may believe that Alphabet can cut spending if its AI investments don’t pay off, “which would put us back in a situation where we’re flush with cash, making it an attractive investment,” Gardner said. “I don’t know!”
No matter what Buffett sees at Alphabet, he’s carefully picking his spots in a heated market, sending a signal that other investors should do the same.