Berkshire Hathaway Rose While Every Major Chip Stock Fell…
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A $360 billion pile of cash and Treasury bills
Berkshire attracts money on days this because of what it owns.
At the end of June, the conglomerate held about $35 billion in cash and about $325 billion in short-term U.S. Treasury bills in its insurance and other businesses — about $360 billion combined. That money is not a bet on anything. It earns interest while it waits, and no sell-off in artificial intelligence (AI) infrastructure touches a dollar of it.
The operating businesses sit just as far from the build-out. Berkshire’s earnings come from car insurance and reinsurance, a railroad, electric utilities, and dozens of manufacturers and retailers.
Second-quarter operating earnings rose 16% year over year to about $13 billion. The manufacturing, service, and retailing group grew 24%, Berkshire Hathaway Energy’s earnings climbed 27%, and the BNSF railroad earned about $1.6 billion, up 6% year over year.
Insurance was the soft spot. Underwriting earnings fell 13% year over year, and insurance investment income slipped 9% to about $3.1 billion. None of those results depends on the price of a graphics processing unit.
Even the stock portfolio leans away from the theme.
Berkshire’s biggest holdings are Apple, American Express, Alphabet, Coca-Cola, and Bank of America — consumer and financial franchises, except for one. The Alphabet stake, worth about $37 billion after roughly $17 billion of buying in the second quarter, is Berkshire’s one large bet adjacent to AI. The portfolio holds no chipmaker at all.
Earnings that don’t need the boom
Of course, Berkshire isn’t immune to a market decline. In a real downturn, its railroad hauls less freight and its stocks fall with everyone else’s.
The point is narrower. Berkshire’s earnings power doesn’t require the AI spending boom to continue. Monday, that independence was what investors paid for.
The nervousness has been building for a week. The is Semiconductor ETF fell 5.5% last week before Monday’s drop, and Nvidia reports earnings Wednesday after the close. Gold, meanwhile, hit its highest level since May. Money is playing defense.
Berkshire has also been supporting its own stock. The company repurchased about $4.5 billion of its s in the second quarter, a sharp step-up from the $235 million it spent on buybacks in the first. And Berkshire was a net buyer of about $20 billion of stocks during the quarter — evidence the conglomerate still sees value in equities.
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NYSE: BRKB
Berkshire Hathaway
Today’s Change
(1.71%) $8.50
Current Price
$504.32
Key Data Points
Market Cap
$1.1TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$498.11 – $504.46
52wk Range
$464.01 – $537.74
Volume
3.2M
Avg Vol
4.8M
Gross Margin
23.52%
Defensive day or rotation?
So is Monday the start of something, or just a nervous session?
One day can’t say. After all, Berkshire’s B s remain nearly 7% below their 52-week high of $537.74. The stock has hardly been the market’s darling this year while AI growth stocks soared, and a single green Monday doesn’t reverse that.
What can be said is what a buyer pays for the defensive qualities. At about $502, Berkshire’s market value is about $1.1 trillion, which works out to about 21 times its annualized operating earnings. The reported price-to-earnings ratio is lower, at about 12, but that figure includes large investment gains that swing from quarter to quarter. On the steadier operating basis, Berkshire is arguably not the discount it was a few years ago.
Still, the stock offers something scarce right now, and Monday showed there’s demand for it. Berkshire’s earnings arrive either way, because premiums and freight don’t wait on the AI build-out. And the $360 billion in cash and Treasury bills becomes more useful, not less, as other assets get cheaper.
At about 21 times operating earnings, none of that comes at a discount anymore. But on the first day in a while that investors seriously doubted the chip complex, Berkshire is what they bought. I don’t think that is a coincidence.
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About the Author
Daniel Sparks is a contributing Motley Fool stock market analyst covering technology, industrials, financials, and consumer goods. Daniel is the owner and chief investment officer of Sparks Capital Management. He holds a master’s degree in business administration from Colorado State University. The Globe and Mail profiled him and his investing philosophy in an article titled, “This stock picker is outperforming nearly everybody else. Here’s how he is doing it.”
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NYSE: BRKB
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