Warren Buffett sat down with CNBC recently and did not hold back. "It's tough to find values when everybody is preferring gambling," he said.
Buffett also pointed out something darker about human nature. He argued that there is more money in building a platform for gamblers than in actually teaching people to invest. The market, in his view, has drifted away from fundamentals and toward excitement.
His warning comes at a time when Berkshire is sitting on a record pile of cash. That is a lot of firepower waiting on the sidelines.
Buffett has a long track record of sitting out speculative frenzies, famously avoiding the dot-com boom of the late 1990s before eventually investing in Apple. His current caution echoes that period, as he stockpiles cash while others chase AI stocks.
Buffett's worry is not new, but the context is striking. Large technology companies like Alphabet, Meta, and Microsoft are pouring hundreds of billions of dollars into artificial intelligence infrastructure. They are buying chips, building data centers, and powering up everything needed to run AI models.
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But Buffett is not convinced all that spending will generate good returns. He called the numbers "real money" and compared the current AI rush to past technology booms. "That's the game they're playing now. They weren't playing that game with computer software," he said.
A University of Maryland finance professor named David Kass, who monitors Berkshire, stated that Buffett feels "concerned" and "troubled" by the situation. He called the trends "troubling" and noted Buffett's "extreme caution" given the sharp run-up in stocks over the past few years.
Yet here is the twist: As of March 31, Berkshire owned nearly 58 million Alphabet shares worth about $20.5 billion. Combining the $10 billion private placement in June with the earlier holdings, Berkshire's total Alphabet stake reached approximately $31 billion as of Thursday's market close, presuming no alterations.
Brett Gardner, author of "Buffett's Early Investments," said he is "a little confused" by the move. He pointed out that to make a bet on Google, you need some sense of the returns on those AI investments. "Buffett didn't seem to have a strong view," Gardner said, adding that the companies might eventually return to "gushing cash again," which makes them attractive, but he admitted, "I don't know!"
Buffett's real concern is not AI itself. It is the price people are paying for the excitement. Adam Schwartz of Black Bear Value Partners summed it up well, stating that Buffett is warning investors "to be careful when speculation becomes the dominant force setting prices instead of fundamentals."
Schwartz also said Buffett has "always believed that eventually fundamentals matter, even if they don't seem to for long stretches" and that investor capital is "chasing excitement instead of cash flows" in the AI era.
That is worth keeping in mind when you look at your own portfolio. The big technology stocks have risen sharply on AI enthusiasm. If the spending does not deliver profits, those companies could see their cash flow shrink, which would hit their stock prices.
On the other hand, Buffett still thinks Alphabet has a better chance of being a winner than most everything Wall Street is selling. He said he thinks the company is more likely to succeed than "90% or 95% of what gets merchandised through Wall Street."
So the takeaway is not to avoid AI stocks entirely. It is to ask the same question Buffett is asking: Are these businesses generating real cash, or are they just chasing excitement? Because eventually, fundamentals matter. Even if it takes a while for them to catch up.
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