A selloff in artificial intelligence (AI) stocks has handed Berkshire Hathaway its biggest lead over the S&P 500 since 2010. Berkshire beat the index by 19.2 percentage points in the month to Thursday.
Its Class B shares rose 13.2% to a record high. The S&P 500, the benchmark behind many US index funds, fell 3.7%. The catch is that Berkshire’s own profits are shrinking.
How Did the AI Selloff Lift Berkshire?
Nvidia, the chipmaker at the center of the AI boom, has lost nearly $1.4 trillion in value since its Oct. 6 record. It fell 9.26% on Nov. 5 alone.
Investors doubt the AI industry’s data center spending will pay off. Democrats’ Nov. 3 midterm wins added fears of tighter scrutiny on new data centers.
Much of that money moved into Berkshire, Fortune reported. Berkshire earns its money from railroads, energy, factories, and insurance, not AI chips.
The gap ranks fourth in 30 years. The record came during the 2008 financial crisis, at 29.6 points.
“Berkshire Hathaway appears strong, even without Warren Buffett as CEO,” the team wrote.
Is Berkshire’s Business Backing the Rally?
Greg Abel replaced Buffett as CEO in January, and Buffett later gave up the chairman’s seat. Abel has been spending the cash.
Berkshire bought back $9.6 billion of its own stock in the third quarter, more than double the prior quarter. It bought about $2 billion more in October.
The business underneath looks weaker. Operating earnings fell 5.8% to $12.7 billion, Insurance Journal reported. Insurance underwriting profit dropped 43%, dragged down by car insurer GEICO.
Bloomberg Intelligence analyst Matthew Palazola offered one reading of Abel’s spending choices.
“Valuations of equities probably were less attractive to Abel in the third quarter.”
Can Berkshire’s Lead Last?
The lead is already shrinking. By Tuesday’s close, it had narrowed to 16.9 points.
These swings run both ways. In May, Berkshire trailed the S&P 500 by 14.3 points.
Berkshire still holds $377.4 billion in cash. A holdings filing due later this month will show what Abel bought and sold.
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