As we move through the peak of tech earnings season, which has been good, but perhaps not good enough to help some of the shares of the Magnificent Seven firms move higher, questions linger as to the next big move for the heated and perhaps mildly overbought S&P 500. As the great bull market in tech looks to continue on, some investors in Berkshire Hathaway (NYSE:BRK-B) stock might be starting to grow concerned that the legendary conglomerate doesn’t quite have enough AI firepower to participate in what seems to be a mostly AI-driven market rally.
The S&P is surging amid the AI boom. Berkshire is underperforming for the year
Though the AI revolution will eventually lead to broader economic gains at some point over the medium term, at least in my opinion, it’s tough to tell if Berkshire Hathaway has what it takes to keep outperforming the S&P 500 as it has in decades past, especially since the S&P is arguably more of an AI-heavy index than it was before ChatGPT more than a year after the pandemic lockdowns lifted.
Undoubtedly, I’m sure many Berkshire shareholders will have a full list of questions come the next Berkshire Hathaway annual meeting of shareholders, one that won’t have Warren Buffett sitting at the front of the stage to take questions.
With just two months left in Buffett’s reign as CEO of the $1 trillion titan, all focus will shift on the Oracle of Omaha’s successors. And you can be sure that the volatility could take things up a few notches as long-time shareholders grow perhaps a bit more critical of the likes of incoming new CEO Greg Abel and the other hand-picked successors that will finally get to be in the driver’s seat (if they weren’t already).
Of course, one big question for Greg Abel, Ajit Jain, as well as star stock pickers Ted Weschler and Todd Combs, is how their public stock investing strategy will differ and evolve in a post-Buffett era. While I’m sure the team will stay true to many of Buffett’s value investment principles, I certainly wouldn’t be surprised if they were to take on more of a liking to the tech sector, even though valuations aren’t as attractive today as they were before the AI boom kicked off nearly three years ago.
How will Buffett’s successors go about investing in the AI age?
With Fed chairman Jerome Powell saying things like AI is different from the dot-com bubble (something that I couldn’t agree more with at a time when the non-stop AI bubble headlines dominate), I’m more inclined to think that not only is there no AI bubble to be found as of the time of this writing, but there might be significant bargains to be found in some corners of the tech sector.
And for those who do take AI bubble comments with a grain of salt, I do think there are GARPY (growth at a reasonable price) names in AI out there for those willing to go against the grain.
While tech is very much the consensus trade these days, it’s also got a contrarian vibe to it, given how nervous investors are of the names leading the AI charge and, more specifically, the mega-cap tech titans that are spending more heavily than Wall Street would like.
Though I have no idea how the views of Abel, Jail, Combs, and Weschler differ from the great Buffett, let’s just say I certainly wouldn’t be surprised if Berkshire Hathaway were to be just a bit better positioned to benefit from the AI boom in three years from now.
Whether that means looking to invest a good chunk of the cash hoard in AI infrastructure projects, waiting for the next “AI winter” before pursuing high-tech AI names, bolstering Berkshire Hathaway Energy further to capitalize on the AI-driven energy demand surge, or adding to its stake in Apple (NASDAQ:AAPL), I do think Berkshire Hathaway will, in due time, benefit from AI, likely at a considerable discount. Perhaps the next major bear market in tech could provide Berkshire Hathaway with a more significant opportunity to pounce.
The bottom line
I wouldn’t get too nervous about Berkshire Hathaway stock’s relative underperformance, with shares down close to 12% from their highs following news that Buffett would retire at year-end. With no Buffett premium and some fantastic managers that will fill his very big shoes, I think the latest dip in shares is more of a buying opportunity, even as investors pass on the name in favor of more AI-heavy kinds of plays.
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