Alphabet, the parent company of Google, announced plans on Monday to raise $80 billion through equity offerings, including a significant investment from Berkshire Hathaway, to aggressively fund the expansion of its artificial intelligence infrastructure.
Berkshire Hathaway Investment
The deal brings Warren Buffett's diversified holding company on board as a major new investor, providing a high-profile endorsement of Alphabet's long-term AI and cloud strategy. Alphabet will sell $10 billion worth of shares to Berkshire in a private placement, comprising $5 billion in Class A common stock at $351.81 per share and $5 billion in Class C capital stock at $348.20 per share, both below Monday's closing prices. Following the announcement, Alphabet's shares fell two percent in after-hours trading.
“All companies are thrilled when Berkshire takes positions, because it is the kind of shareholder that companies like to have,” said Steven Check, president and chief investment officer of Check Capital Management, which holds investments in Berkshire stock.
Increased Capital Spending
Alphabet raised its yearly capital spending forecast by $5 billion to between $180 billion and $190 billion in April, ramping up investments to capture growing AI-driven computing demand with its business AI tools and custom chips. The company aims to raise $30 billion through concurrent public offerings backed by investment banks, split evenly between depositary shares tied to mandatory convertible preferred stock and Class A and C shares. Additionally, Alphabet expects to launch a $40 billion at-the-market offering program in the third quarter, allowing it to sell Class A and Class C stock gradually over time.
Strong Demand for AI Solutions
“The company is experiencing strong demand for its AI solutions and services from enterprises and consumers, at levels that are exceeding the company's available supply,” Alphabet stated. The company has raised more than $85 billion in debt across six currencies and markets over the past year, bringing its total debt balance to over $100 billion.
Berkshire's investment adds to the position it has built since the third quarter of last year. Last month, Berkshire said it more than tripled its stake in Alphabet, making it one of its largest common stock investments at $16.6 billion. “This additional purchase underscores that Greg Abel (Berkshire CEO) believes that Alphabet will earn a reasonable return on its AI capex spending even with the firm issuing additional shares,” said Bill Stone, chief investment officer at Glenview Trust Company.
