Berkshire Hathaway’s Greg Abel points to Alphabet, and investors ask whether the holding fits the “Rule of 40”

Berkshire Hathaway’s investment approach is built on long-term business ownership, but the latest discussion around its portfolio has leaned into a popular growth-and-profitability yardstick. A recent Yahoo Finance column said Berkshire Hathaway CEO Greg Abel has a “new favorite stock,” naming Alphabet, and it raised whether the tech giant can satisfy the “Rule of 40,” a framework investors use to judge how well a company balances growth with margins.

The “Rule of 40” is not a reporting standard and it is not used by regulators. It is a shorthand used by market participants, particularly in subscription and high-growth businesses. In its simplest form, the rule asks whether a company’s combined figure for growth rate plus profit margin reaches at least 40. Supporters argue that getting to 40 can indicate a healthy trade-off: growth that is not being purchased with permanently deteriorating profitability, and profitability that is not coming at the expense of future expansion.

In the Yahoo Finance write-up, the thrust is that investors are increasingly trying to translate Berkshire’s steady, operating-led style into quantitative screens that are familiar to other equity segments. The column’s framing suggests that Alphabet, which has both advertising-driven cash generation and a rapidly evolving set of bets in areas such as cloud and other platform services, is being examined through the same lens used for software-like businesses.

Berkshire Hathaway’s interest in Alphabet matters to markets because Berkshire’s size and reputation often turn portfolio behavior into a announcement of what executives believe can compound over time. While Berkshire is not defined by rapid trading or short-term themes, CEO Greg Abel’s public comments and interview remarks can still influence how outside investors interpret which underlying industries and business models Berkshire finds durable.

That said, the “Rule of 40” question also highlights a key gap in how these frameworks map to a holding company. Alphabet’s segment mix and accounting drivers are not the same as a typical subscription software company. Advertising cycles, infrastructure spending, and one-time items can swing profitability and growth measures over different time horizons. In practice, the “Rule of 40” calculation depends on which growth and which margin are chosen, and small methodological differences can change whether a company appears to meet the threshold.

For shareholders, the most immediate takeaway from the Yahoo Finance column is not a new disclosure from Berkshire Hathaway itself, but rather the market’s attempt to interpret Berkshire’s choices using a widely discussed KPI. The article does not, in its headline framing, provide a new breakdown of Berkshire’s position size, cost basis, or any company-specific strategy updates. It also does not establish that Berkshire is measuring Alphabet internally using the Rule of 40 framework.

Outside of this particular discussion, the broader context is that “Rule of 40” has become a common reference point during earnings seasons, especially for investors comparing profitability and growth trajectories across sectors. In that sense, the column reflects a recurring market behavior: when a long-term investor like Berkshire highlights or is associated with a well-known mega-cap, analysts often translate qualitative impressions into quantitative checkpoints.

Going forward, investors will likely watch for two things. First, any additional comments or filings that clarify what Berkshire’s leadership values in Alphabet beyond general confidence in the business. Second, whether Alphabet’s financial trajectory makes the Rule of 40 lens look more convincing over subsequent quarters, particularly in periods when ad demand, cloud growth, and operating leverage move in different directions. Without further detail on how Berkshire views the trade-off between margin and expansion, the debate remains a market interpretation rather than a disclosed Berkshire strategy.