AI Stock Slump Gives Berkshire Biggest Index Edge Since Financial Crisis

A broad retreat in AI-focused equities has given Berkshire Hathaway its largest outperformance versus the S&P 500 in over a decade. Over the month ending Thursday, the conglomerate bested the benchmark by 19.2 percentage points.

Berkshire's Class B shares climbed 13.2% to an all-time peak during the period. Meanwhile, the S&P 500 — the index behind numerous US tracker funds — declined by 3.7%. The caveat is that Berkshire's own earnings are declining.

How Did the AI Selloff Lift Berkshire?

Nvidia, the semiconductor firm at the core of the AI surge, has shed roughly $1.4 trillion in market value since hitting its record on Oct. 6. On Nov. 5 alone, the stock dropped 9.26%.

Market participants are questioning whether spending on data centers tied to AI will generate returns. Concerns over tighter regulation of new data centers grew after Democrats secured midterm victories on Nov. 3.

A substantial portion of that capital rotated into Berkshire, according to Fortune. The company generates revenue from railroads, energy, manufacturing and insurance — not AI chips.

The gap ranks as the fourth largest in three decades. The widest spread occurred 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 succeeded Buffett as CEO in January, and Buffett later relinquished the role of chairman. Abel has been deploying the company's cash reserves.

In the third quarter, Berkshire repurchased $9.6 billion of its own shares — more than double the buyback volume from the prior three months. An additional $2 billion or so was spent on buybacks in October.

The underlying business performance appears softer. Operating profit slipped 5.8% to $12.7 billion, as reported by Insurance Journal. Underwriting profit from insurance fell 43%, pulled down by auto insurer GEICO.

Bloomberg Intelligence analyst Matthew Palazola offered one interpretation of Abel's investment strategy.

“Valuations of equities probably were less attractive to Abel in the third quarter.”

Can Berkshire’s Lead Last?

The advantage is already fading. By Tuesday's market close, the gap had tightened to 16.9 points.

Such swings can move in either direction. Berkshire trailed the S&P 500 by 14.3 points back in May.

Berkshire continues to sit on $377.4 billion in cash. A regulatory filing due later this month will detail which securities Abel purchased and sold.