Berkshire's $380B cash pile signals caution as Buffett says 'humans love to gamble,' warns on AI spending and lack of value in a market favoring speculators.
Warren Buffett is worried. The legendary investor called out reckless speculation in markets and the massive cost of the AI buildout during a rare interview with CNBC on Wednesday. "It's tough to find values when everybody is preferring gambling," the 95-year-old chairman of Berkshire Hathaway said.
Buffett said the market has shifted in favor of speculators, adding that "humans love to gamble so much, there's more money in actually cultivating gamblers than there is in cultivating investors." His caution has pushed Berkshire's cash pile to a record $380 billion at the end of March.
Adam Schwartz, chief investor at Black Bear Value Partners, said Buffett is warning investors not to avoid AI but to be careful when speculation becomes the dominant force setting prices. "He has always believed that eventually fundamentals matter, even if they don't seem to for long stretches," Schwartz said. Capital is "chasing excitement instead of cash flows" in the AI era.
David Kass, a finance professor at the University of Maryland, said Buffett does seem concerned by troubling trends such as growing use of derivatives and shrinking time horizons. Kass noted that Buffett's extreme caution has stopped him from capitalizing on a sharply rising equity market over the past few years.
Buffett flagged how companies like Meta and Microsoft are spending hundreds of billions of dollars on microchips and data centers to win the AI race, with Alphabet also part of that group. "That's real money," he said. "That's the game they're playing now. They weren't playing that game with computer software."
Kass said Buffett seemed troubled by those outlays. In his view, the spending erodes cash flows that previously funded stock buybacks and raises the prospect that companies will sink a ton of money into AI with little to show for it.
Yet Buffett also revealed that Berkshire invested in Alphabet last year. Berkshire ramped up that position to nearly 58 million shares during the nine months ended March 31, securing a stake worth $20.5 billion today. Berkshire added another $10 billion in Alphabet through a private placement in June, boosting its wager to nearly $31 billion at Thursday's close. That made Alphabet the third-biggest holding in Berkshire's stock portfolio after Apple and American Express, overtaking Coca-Cola.
"I think they're more likely to be a winner based on the record than probably 90% or 95% of what gets merchandised through Wall Street," Buffett said.
Brett Gardner, author of "Buffett's Early Investments," said he was "a little confused" by Buffett investing in Alphabet given his concerns about AI costs. "To make a bet on Google, I think you need to have some sense of the returns on these investments," Gardner said, adding that Buffett "didn't seem to have a strong view" on that front. Gardner suggested Buffett might think Alphabet can pare its spending if AI investments aren't paying off and return to gushing cash, making it an attractive investment. "I don't know!" Gardner said.
Berkshire's own Alpha Score, a gauge of technical and fundamental health, sits at 49 out of 100, a Mixed rating that reflects the tension between its record cash pile and the expensive market Buffett is navigating.
Berkshire is scheduled to report quarterly earnings this weekend. The $380 billion cash pile will be a central topic.
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