Episode 69 | Earnings Season Highlights from Alphabet, Microsoft, and Berkshire Hathaway

In Episode 69 of “Market News with Rodney Lake,” Professor Lake, director of the GW Investment Institute, examines earnings from Alphabet, Microsoft, and Berkshire Hathaway. He highlights Alphabet’s standout quarter, backed by strong advertising, rapid Google Cloud growth, and significant AI investment. Microsoft also reports impressive results with Azure’s continued momentum, substantial AI-driven CapEx, and a notable 27% stake in OpenAI under Satya Nadella’s strong leadership. Berkshire Hathaway, positioned as a “contra-AI trade,” spotlights their $380B cash pile, steady operating businesses, and the upcoming leadership transition from Warren Buffett to Greg Abel. This week, Professor Lake emphasizes valuation context, balance-sheet health, and why these companies matter for investors.

Chapters

• 0:00 Introduction
• 2:31 Alphabet
• 10:09 Microsoft
• 15:39 Berkshire Hathaway
• 22:20 Conclusion

Transcript

Thank you for joining Market News with Rodney Lake. This is a regular program for the GW Investment Institute where we talk about timely market topics. I'm Rodney Lake, the director of the GW Investment Institute. Let's get started.
Welcome back to Market News with Rodney Lake. I'm your host, Rodney Lake. Coming to you from the George Washington University sSchool of Business, Duquès Hall. Duquès family studio
right here. Excuse me. In the heart of Foggy Bottom. This is a GW Investment Institute podcast. Educational entertainment purposes only, not investment advice. Right at the top of the show there. So today's episode where we're starting a new format.
We've had one episode already. We're anxious to hear feedback. If you like this format, we're mixing up a little bit. We're still using the BMPB framework, business, management, price valuation and balance sheet. But the catalyst for the companies, we're talking about, companies in our portfolio. For the episode today, plus companies that just announced earnings. So we're going to go over the BMPB.
But also through the lens of earnings being announced. And so what are the three companies, drumroll, today that we're going to cover that are in our portfolios? Alphabet, Microsoft and Berkshire Hathaway. Obviously, one of these things is not like the other does not pass the Sesame Street test. That's probably Berkshire Hathaway, Alphabet and Microsoft, big tech companies, Berkshire Hathaway Mega-cap company, but not really in the the center of the tech world.
It owns a big slug of Apple. However, it would be considered, you know, an old school company. We'll talk about that and its current CEO. We'll be stepping down. Warren Buffett, very famous Warren Buffett and certainly underpins a lot of what we do. And we learned a lot from Buffett for the GW Investment Institute and have taken a lot of his ideas for the classes that we teach.
We obviously modify those. And, for the things that we want to do, we obviously own a bunch of different companies, like alphabet, Microsoft and Nvidia, that that Buffett and Company of Berkshire Hathaway don't own. Ted and Todd, and Buffett in their equity portfolios. And they buy businesses that we wouldn't necessarily buy. Party City, an example of that.
But they're a big insurance company, and they have been very good to us. And Buffett has been very good to his investors. So nothing but love for Buffett from us. Taking a sip. If you're listening to the episode on the podcast. Apple, Amazon, Spotify, if you're watching on YouTube, you can see this is a GW business school mug, you know, buy the merch, subscribe to the channel.
Okay, so we're going to go through these companies’ business, management, price valuation and balance sheet. Alphabet, also known as Google as we all know and love it. But its official name, corporate wise is alphabet. So business side, let's start going through the earnings. What has been happening on, just recently announced the earnings here reported, September 30 were here, for the quarter ended September 30th.
Reported on October 29th. All right, let's get into it. Q3 here, 102 billion on the revenue side, that is up, 16% year over year. That is a beat. Google advertising here, $74 billion. That's up 12, over 12%. That's a beat. Excuse me. Search and other 56. 15%. And the YouTube here, which I think is important to watch, up big too.
And so Google Cloud, this is something that I think everybody should be paying attention to. So this is what, you know, we just talked about what AWS is doing and how, you know, it it reported after,Google and Microsoft Azure and we're going to be talking about Microsoft in this episode. But if you look at the numbers here, up 34%, 15 billion.
So look monster quarter here, operating income up 36%, 31 billion. Net income 34. Billion up 33%. So free cash flow 24 billion. Right. Monster quarter. It's absolutely here at the center of what's happening at AI. One of the companies again, maybe the the company at the center right now, that we talk about often is Nvidia, but certainly the Mag 7.
I say in general, probably you can really put in the discussion of what's happening on on AI if you want to add Broadcom in there as well for to to round it out as the Elite 8. You can do that as well. And many people have been doing that. So business side, obviously booming here right. Gemini is the large language model that Google has.
They've been incorporating that into products. I would say, you know, but this is my personal hot take. What's happening on the model side? I would have number one. And there's all that, you know, different benchmarks. This is the Market News with Rodney Lake benchmark for large language models. By the way, this is based on my personal experience.
So there is no, you know, data set that I'm going to produce here to show you this, just based on my usage and mostly my usage involves what can I, what investment analysis can I do with these models. And that's generally what it does for me. And so I'm super focused in on that. So for me number one is Grok.
Number two ChatGPT, number three Claude by anthropic number four deep number four for that is Gemini. Now I do do use it for some coding as well. I think they're all pretty good for that. I do think Grok is quite good. ChatGPT is good. Anthropic or Claud by anthropic, I think, is also good there.
And I think, Gemini definitely, bumps up, but still in fourth place. But certainly more competitive there. I think on the analysis side, if refuses to do, some some, you know, some work there. But the other models I think are well ahead. And again, that's my benchmarking for investment analysis, using these large language models.
So again, you know, that's not based on any extraordinary data set. It's a data set of one and how I use it. And that's you would call it anecdotal, but when I benchmark the models, that's where I have them. And I would say that there's a top three in a distant four, for that. And then I would say they're all for together, depending if you're using it for coding in his example, I would say it's there.
I'm not an advanced coder, to be super clear, but I certainly do it. I run a quant class and certainly do things, for that, but I think it's, it's a great tool. It's great to use. And I think it's important to consider and think about, you know, your usage case and you can make yourself a lot more productive.
So back to Alphabet here, back to Google. And then we'll move on to Microsoft and Berkshire Hathaway. Again Monster Quarter. So that on the business side, so let's let's dive in. You know the numbers here, right? Market cap. You know, also at the talk about where it is right now, 3.3 trillion dollars market cap, year to date number up 47%, for Google.
So it's been good after the overhang of, you know, the legal issue, you know, obviously worked out much better than people expected. And so, you know, obviously you had a pop after that and now you have really earnings, going very solidly for, for Alphabet/Google. We'll just call it Google, for ease of use here.
So all good, metrics there on the business side. Now, if you look at Sundar Pichai, the CEO, you got to give him credit where credit is due. Has been navigating the company. Well, you know, I think they're investing in the right places at the moment. I think obviously incorporating Gemini even. Excuse me? Even if I put it fourth.
The fact that they can incorporate into that their the business suite of products into the personal suite of products that people use and they use email, they use Docs, they use Sheets. That's that's very good. So for research and analysis, and certain things that that I do in Google, I do think it's quite good. And if you have an integrated approach, obviously people are, you know, for enterprise solutions, and people are pouring money into enterprise solutions, I think Microsoft and think, think Google here, like they're chugging coffee.
And so good for them. And certainly if you have an enterprise solution that's different, than the, the enterprise solution that ChatGPT or grok would have at the moment. Now, that can change over time. But if you look at enterprise solution side, you would have to you would have to give an advantage currently to Alphabet and Microsoft, who have all these enterprise clients already and have relationships.
And that matters on the security side as well. So the integration there I think is important. So the business side, being run by the management, doing well. So setting up a, a very good allocation of capital, it seems to be very good, at the moment. And they're investing heavily, you know, big CapEx budgets. And so we'll talk a little bit about that.
So if you look at, you know, how much money they're pouring into CapEx, $90 billion is the expected for this year. A lot of that's going into AI. And again, they have their own models. So very good neural net chips as well. So Google, in good shape on that. So let's move on, to the valuation here.
So if you look at what's happening on on the valuation side, for Alphabet/Google, you know, 25 times, this is not expensive. This is not an expensive company. This is basically a market multiple. So, you know, not advocating a buy, for any of these companies. We do own these companies in our portfolio, not investment advice, educational entertainment purposes only.
But 25 times is not expensive for a company that sits at the center, with others, around this AI play and so, you know, not expensive at all here on the valuation, especially to other companies and, and for a company that's this big growing, and it has the potential to grow, into some of these gigantic markets.
And so, pretty good. And now look at the balance sheet here. This is also not going to surprise anybody. Sleeping like a baby at night can take a sip out of my GW school business mug.
98 billion in cash, through the trailing 12 months, quarter 37. And that's a big net cash position generating, tons of cash. Free cash flow of 73 billion. That's for that quarter. That's after investing 77 billion. And so plowing money back into the business. So for the full year 2025, 12/31 calendar year, thinking 90 billion on CapEx, but still generating $62 billion in free cash flow.
So not necessarily worried at all about sleeping like a baby at night on the balance sheet for Google. Now moving on to Microsoft. So Microsoft also announced earnings and also, you know, another AI company that's in our portfolio and part of the Mag 7. Excuse me. Talk about revenue. This is their Q1, fiscal year 26, 77 billion up 18%.
Operating income 38 billion, up 24%. Net income 27 billion, up 12%. So look, these numbers are great. And you know, if you think about what's happening, we focus on this for AWS focuses on Google Cloud also intelligent cloud, Microsoft Azure talking about 30 billion of revenue, up 28%. These are big numbers. And so and Azure and other cloud services, up 40, depending on how you're counting all these things, percent.
So look, Microsoft is absolutely at the table here. They are plowing money, you know, 34 billion in CapEx. And, and we'll go through their CapEx numbers. And so absolutely not constrained here. You know, they have a big investment in OpenAI, they did some reshuffling, and now Microsoft owns approximately 27% of OpenAI for profit arm. With total committed capital, by the way, of 13 billion.
I think that's worth noting. Right. Look at, you know, they own 27% of a $500 billion. You know, what's expected valuation or valuation for OpenAI? Obviously on paper so far they have done they have done well with that. It's been good allocation of capital, from from management team. And I think, you know, again, tip of the cap, for the management team.
We'll get to that in a second here. But look, overall on the business side, going through the numbers for this quarter has been fantastic. And I do think that the management team has been, you know, killing it there. And so running the business. Well, so let's get back and now let's talk about, the management team here for for Microsoft.
Again, we went through the operational numbers. And so they're running the business super. Well, Nadella here, who's the CEO, doing a fantastic job in really steering this company and really, was one who spearheaded Microsoft Azure in the cloud business and transforming the company and has continued to transform that business. And so Nadella gets, I think a really great score on the management side.
And so really good things to say about that capital allocation side. If you think about the CapEx, which we talked about very high for Microsoft. And so what what's the expected full year number, you know, $76 billion, for their fiscal year, which is June 30th, you know, sorry, $94 billion. And then it'll produce free cash flow of $76 billion through 2025.
And so, look, allocation capital very strong, going after the AI try, you know, playing to win in the AI game, which I think is the way to do it. So two of the cap to Nadella and company on the management side. And now we'll quickly move to the balance sheet. And then we're going to move on, to Berkshire here.
Well, we'll do a little bit of wrap up here at Microsoft. So going to the balance sheet, you know, also the same here, 100 billion, in cash and total debt 120 here. So, you know, not not a net cash situation for Microsoft currently through 9/30 2025 by generating plenty of free cash flow, 78 billion through that time period.
So not really worried about Microsoft's balance sheet really sleeping like a baby at night. And so, you know, not worried. And if you look at the interest coverage ratio, which again is earnings before interest and tax Ebit over total interest expense, that is nearly 54 times. So sleeping like a baby Microsoft okay. So business, management, price valuation, and balance sheet for Microsoft.
You go through the business the cloud business obviously growing really important. You know they have this big investment in OpenAI, which is, you know, the early leader in the large language models finishing second. And my benchmark as we covered there. But big investment there and cruising ahead, dominating along with Google and AWS and providing those cloud businesses and Oracle coming on strong, as well.
But really at the center along with the Mag 7 and the AI play a front and center again with its own investment in open AI, 27% of the reorganized for profit arm of OpenAI. So we'll have to see how that plays out. All right. So overall very good. You know, hitting on all those metrics. Very solidly and, you know, optimistic about the future of Microsoft.
We didn't cover the valuation. Let's make sure and get back, and cover where they are on the valuation side. BMPB, we skipped over the valuation. I moved on to the balance sheet very quickly. What's happening on the on the valuation? Well, it's a little more expensive than alphabet at 32 times, but certainly not super expensive, especially when you consider this is a Mag 7.
It's at it's at the, you know, the table here. And it even has a dividend yield of 0.71%. So getting it paid a little bit of money, not a ton of money, but getting paid a little bit with not a crazy valuation. You know, they announced great earnings and actually sold off a little bit. But the year to date number up strongly, 21% overall, with the market cap $3.8 trillion.
So one of the largest companies in the world. All right. So overall business, solid management, very solid price valuation, you know, maybe a little bit expensive certainly compared to an S&P 500 company but not compared to a mac seven company. Not compared to a company that's sitting, with lots of great assets and future growth prospects here with AI, not super expensive, not advocating, as I just remember here.
But we do own this company, so important for us to watch and the balance sheet clean, you know, 54 times interest coverage ratio, Ebit over interest. No problem. Sleeping like a baby. All right. The last company we cover in this episode is Berkshire Hathaway. Now as I mentioned, this is the Sesame Street test. One of these things is not like the other.
That would be Berkshire Hathaway. We talk about Alphabet. We're talking about Microsoft. We're now we're talking about Berkshire Hathaway, which I would call the contra AI trade. So if this is in your portfolio, maybe you keep it there. And you think about this as your hedge against the AI world. Now, you know, you don't have to do that.
But you can certainly think about it in that way. That's how I think about it for our portfolios, I would I call this the contra AI trade. And this is, you know, some old school businesses, railroads, insurance. And we'll talk about that in a second. And some of that, you know, I think is at risk.
So if you look at the numbers here, operating earnings, 13.5 billion approximately, you know, change is quarter over quarter over quarter, 34% here. You know, revenue up 94 billion, you know, modestly there, 2%. And I think the piece here, that people have been watching very closely, is what is the cash pile?
So the net cash pile actually grew. So they're net sellers of stock. And so 380 billion, approximately 381.7, and that's up. And so 100 billion, year to date. And so they haven't been buying back any stock. They have been net sellers of stock. And so the cash pile continues to grow. And so they net sold 6.1 billion in equities.
That's the 12th straight quarter. Excuse me of being a net seller. So what does Buffett know that we don't know. Well we don't know but he's obviously concerned. And Ted and Todd who run the equity portfolio they seem concerned. Maybe it's about the valuation. Maybe that's the AI bubble. They're not involved in a lot of these companies.
They do own shares in Apple, which is one of their larger positions. But overall, if you look at insurance, it's going well. Railroad's going well. You know, manufacturing and services up 7.9%. And the energy piece here, you know, not bad, but you certainly would say, like, okay, what's the real tell here? It's the cash pile.
So the operating businesses seem to be doing okay. And one of the ones that I'll call on, we'll come back to the cash pile while we're at business management. Price valuation valuation and balance sheet. On the business side here, one of the concerns that I would have or I do have since we're shareholders in this company, is what's happening with Geico in particular.
If full self-driving continues to improve right now, depending on what stats you can find, you can find some stats online that supervised Full Self-Driving by Tesla is about ten times better now, than, you know, unsupervised driving by people. And I don't that's from Tesla. I don't have the Waymo data. But it's currently ten times better.
Currently supervised full self-driving. It's ten times better. That's going to improve when it gets to 100 times better. A 10x from here, you know what's going to happen to car insurance rates? It's probably going to drop. And so the expectation there is I think that is a business, that. Yeah. Got it closely watched that insurance business on the on the driving side. Now Berkshire Read and some of the other big things can continue to do.
Well and I think they'll still be, you know, business to be had their, the railroads you know, could actually improve. And if really are running the railroads even more efficiently with AI, maybe that's going to be a very good thing. And so Burlington Northern, is, is, you know, pretax earnings grew 11%. So keep an eye on that.
Moving goods all around with less and less people. And so maybe they become a big beneficiary of the railroads now. Well, you could say is that with autonomous driving in the semi trucks, it could put a dent in that, but it could actually drive volume. So we'll have to wait and see. I think it's worth paying attention to there.
And then of course, on the energy business, if there's a lot more energy demand, and they're producing that and they're producing it profitably regulated part of the business, that could be a very good for them. Back to the cash crowd. So that's the business side. So the business side, relatively well, overall, the cash pile seems to be, a big concern.
So overall business, I would say, again, I trade insurance. Not really. You know, could be impacted by, particularly the car side, railroads. Me, you know, could go either way. Manufacturing, obviously can go either way on energy side. Maybe that's a tailwind for them. And so again, maybe that full control I trade here. But certainly the things that they're doing and how they're deploying their capital could be the way I trade.
So now moving on to management. And so Buffett famous obviously well known. We love him. You love him possibly stepping down at the end of the year Greg Abel taking over Ajit Jain will continue to run the insurance part of the business. Something for us to watch is will this change dramatically what they're doing? You know, I think they should have been very aggressive on the railroad side, making a nationwide network here.
But, you know, that's just me. Maybe next year that will happen. And Greg Abel is fully in control here. While we have sort of this transition period, Buffett leaving at the end of the year officially as CEO. So management still going to give a tip of the cap, running okay. Obviously, you know, could do better on the on the valuation side.
You know, this is not, they have not been buying back shares. It's, if you look at. Okay, well, what's, what's Berkshire Hathaway been doing? Well, they have not been buying back their shares, so they don't consider themselves, to be dramatically undervalued by any chance at Buffett talks about. Okay, when we get down to, like, you know, 1.2 times book, then they'll be buying back shares.
That has not been the case. And so if you think about, you know, where they are now, you know, they're well above that on the, on the price, the book side. So you know what's going to happen? Well, if they're not buyback shares, then I think it's going to be, you know, fairly valued, if you want to say that right now, we could say that it's fairly valued, at the moment.
So not super, not cheap. Certainly not cheap enough for Buffett and company to be buying back shares. But, you know, you know, certainly not super expensive. And I, you know, I wouldn't say, in any case overvalued. So the price valuation in the balance sheet, that's where we get back to the cash pile, 380 billion, approximately.
On the balance sheet, what is Buffett know that? We don't know. Again, this is where it gets back to the contra I trade. Maybe the balance sheet helps not only helps you sleep at night, but if there is, you know, some burst in the bubble where there is some period where, you know, people get very stretched.
You would hope that Greg Abell, as CEO, gets to deploy some of that capital, and buy some great businesses on the cheap or expands the railroad or whatever they want to do. But they do have the cash pile to do it. That could again be your hedge on the AI trade if you want to remain fully invested.
So business management price valuation and balancing overall, you know contra AI trade is what I'm calling it right now. And again please let us know about the new format today. We talked about companies that just announced earnings that we own alphabet, Microsoft and Google. And so we'd love to hear from you. Send us your feedback. What are you thinking?
Do you like this new format? By merch, subscribe to the show. That's it for this episode of Market News with Rodney Lake. We'll see you back on the next one. Thank you.