Will Alphabet Break Warren Buffett's Cardinal Rule of Investing?

The most notable change in Berkshire Hathaway 's (NYSE: BRKA)(NYSE: BRKB) massive, roughly $360 billion stock portfolio this year has been the conglomerate's large increase in Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

While Berkshire initiated the position last year under Warren Buffett's leadership, the company has significantly increased its stake in Alphabet under new CEO Greg Abel. Between the end of 2025 and the end of the second quarter of this year, the value of Berkshire's Alphabet position soared from about $5.6 billion to nearly $37.8 billion, making Alphabet one of Berkshire's largest positions.

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Perhaps even more interesting is that as Berkshire was buying, Alphabet's returns have declined. Will Alphabet break Warren Buffett's cardinal rule of investing?

In a surprising interview with CNBC in July, the 96-year-old Buffett, who remains executive chairman of Berkshire, revealed he had initiated the Alphabet position last year, meaning he and Abel likely decided together to significantly increase Berkshire's stake.

During this same interview, Buffett also told CNBC, "The trick in life is to find -- I mean investing -- is to find businesses that are going to earn high returns on capital for an extended period of time," Buffett said.

By returns on capital, Buffett is most likely referring to return on invested capital (ROIC) , which essentially examines how efficiently companies use capital to generate profits. Capital, in this scenario, refers to both debt and equity.

The goal is for companies to generate ROICs that are above their weighted average cost of capital (WACC) . Right now, Alphabet is experiencing declining ROICs, and that trend is expected to continue in future years, according to Wall Street analysts.

According to Visible Alpha, Alphabet generated a post-tax ROIC of over 58% in 2024, which is simply remarkable. In 2025, that number declined to roughly 42%. This year, analysts on average expect another decline to 38.3%.

While much more difficult to predict and likely to be revised, analysts also expect Alphabet's ROIC to decline in each year between 2027 and 2029, falling below 31% by 2029, which, generally speaking, is still quite strong.

The reason for the decline is that Alphabet, along with other hyperscalers, is significantly increasing its capital expenditures to build artificial intelligence infrastructure. Alphabet has guided for roughly $200 billion in capex this year, and that number is expected to "increase significantly in 2027," according to Alphabet CFO Anat Ashkenazi on the company's most recent earnings call.