Berkshire Hathaway’s $10 Billion Google Bet Explained

During their recent episode, Taylor, Carlisle, Julien Albertini and Christian Heck discussed Berkshire Hathaway’s $10 Billion Google Bet Explained. Here’s an excerpt from the episode:

[Tobias] I’ve got one that’s a little bit more closer to home. Berkshire Hathaway has taken $10 billion of Google, is doing an $80 billion private placement, or sorry, that’s not true. They’re doing an $80 billion capital raising.

I think they’re doing some at the market. Berkshire is taking $10 billion of that. What does it say about Google that they need to go outside for capital?

[Christian] You know, these companies, the four hyperscalers were or are incredible companies because they’ve been able at scale to continue to grow at a very rapid clip without historically deploying a lot of capital, which of course is incredibly valuable. And when you look at the time series, historically, the hyperscalers spend about 20% of their operating cash flow in CapEx. Quite phenomenal, growing at a rapid clip at scale.

However, that business model has changed. If you look at the forecast for this year, they’re going to spend about all of their operating cash flow in CapEx. And that’s a step up going from 20% of operating cash flow in CapEx to 100%.

You can only do that once. Eventually, the growth in CapEx has to asymptote towards the growth in operating cash flow, which I think is the moment we have hit. And when you look at the build out in AI infrastructure in the US, that’s forecasted over the next three to five years, the vast majority of that is driven by the hyperscalers plus Oracle, that they have reached CapEx approaching operating cash flow growth.

So at that point, you will have to look to some external funding sources, whether that is raising some equity, whether that is the debt markets. It will be quite interesting to see how that build out is going to unfold. But not to mention the 50 to 80 gigawatts of electricity that will be required to power that build out of the three to five trillion we’re supposed to see over the next few years, which of course are 50 to 80 nuclear plants.

I think we’ve built two in this country over the last 40 years.

[Jake] That’s the part that surprises me with Berkshire’s involvement. I could have seen them doing some kind of a JV maybe where they built the power plants or maybe even like some preferred that was connected to that. But to just come in straight equity, 10 billion.

I think maybe what was it was like 6% better than the market price or something recently. But like Google’s up 3x in the last five years. So it’s not like it’s a sweetheart deal or anything.

It just makes my head hurt, to be honest with you. I don’t understand what they’re doing.

[Julien] We own Alphabet, to be honest, and it’s a formidable enterprise. The people who run it, Sundar’s team, Uth Bharat, we have the highest respect for them. And I think on the consumer side of AI, you can make a case that historically, when you’ve got a new technology, when you have the distribution the way Google has, if they integrate AI intelligently, and I think they’ve done it well with Gemini in search, they’re going to be hard to beat.

And obviously, they have the model, they have the engineering talent, they have the hardware as well as the TPUs, they have Google Cloud, they have a pretty amazing collection of assets. And we remain pretty constructive, ultimately, on the business. And if you look at the 80 billion, it’s a huge number, obviously.

But if you look at it relative to its market cap, it’s just a couple of percent. So it’s not a huge dilution. And historically, they’ve got a return on those investments.

So just taking the other side, I think it’s a pretty amazing enterprise.

[Tobias] It’s modest dilution. I think they did $42 billion operating cash flow over the last year. And so $80 billion is about two times operating cash flow.

So not a huge number either. But I just think that it’s…

[Julien] The operating cash flow at Google is actually $185 billion on a trillion 12 months.

[Tobias] Okay, pre-cash flow, is it?

[Julien] And the capex is about equivalent to all these operating cash flow. What they’re saying is in 2026, you’re going to see capex going from like $180 billion to probably $300 billion. Today, they’ve got a net cash balance sheet.

So they might need to borrow some debt. But they did raise, they’re raising a bit of equity as well. But that’s not massively dilutive.

[Tobias] I just wonder about the strategy of everybody spending at the same time to build it out. Is it to meet… Does the demand…

Is the demand going to be there in 2030?

[Jake] It’s consumer surplus, Toby.