While $381 billion could buy a lot of things, an undervalued stock is apparently not one of them right now, at least that’s the message from Warren Buffett’s Berkshire Hathaway. The billionaire investor not only looks
to be wary of the artificial-intelligence boom but also the wider market.
The “Sage of Omaha” is set to retire as CEO of Berkshire at the end of this year with the conglomerate sitting on its biggest ever cash pile, after being a net seller of stocks in the third quarter. It’s the 12th consecutive quarter of net sales. He will remain chairman of the board.
It’s not surprising that Buffett isn’t loading up on AI stocks. He’s famously wary of investing outside his “circle of competence” and has mostly avoided the tech sector. Even Berkshire’s huge Apple stake has now largely been sold down, while the iPhone maker’s stock has climbed to record highs. But the lack of any new significant purchases suggests a more widespread skepticism about market valuations.
The Buffett Indicator—the ratio of the stock market’s total capitalization to gross domestic product—now stands north of 220%. Buffett previously warned a ratio of above 200% was “playing with fire.”
So should investors be following suit
and taking money off the table? Caution seems warranted, but Buffett’s style of investment won’t work for everyone. Berkshire’s concentrated portfolio and aversion to tech stocks has led to significant underperformance against the S&P 500 this year. Its relative inactivity could also be about guaranteeing flexibility for the CEO’s handpicked successor Greg Abel.
Perhaps most importantly, most of us don’t have billions of dollars to pour into the market when valuations collapse. Investors will have to get through this next market cycle without much guidance from Buffett, as he
hands over the reins.
—Adam
Clark
***Join Barron’s senior managing editor Ben Levisohn, associate editor Al Root, and Barron’s Investor Circle reporter Josh Schafer today at noon when they discuss what could be in store for stocks, Tesla, and the AI trade as the market heads into the home stretch for the year. Sign up here.
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Berkshire Hathaway Earnings Leave Successor in a Good Place
Warren Buffett will be leaving on a high note after Berkshire Hathaway reported strong third-quarter earnings results Saturday and its enormous cash holdings hit record levels. This will give Greg Abel—the Berkshire executive who will succeed
95-year-old Buffett as CEO at the end of the year—a good foundation to begin his tenure as leader of the world’s biggest conglomerate, which has a $1 trillion market value.
- Berkshire’s operating earnings after taxes rose 33% year over year in the third quarter to $13.5 billion and cash and equivalent holdings hit $381 billion to end the period, up from $344 billion in the quarter ended June 30.
- Those figures, however, weren’t quite as impressive as they looked. Strip out currency-related profit swings, and Berkshire’s operating earnings rose 17% from a year ago to $13.2 billion, while per-share profits topped the consensus estimate by about 7%.
- There also was a timing issue with more than $20 billion of Treasury bill purchases. Adjust for that and cash levels stood at about $359 billion—giving Abel plenty of capacity for investments and potential acquisitions.
What’s Next: A key issue for 2026 will be Abel, his leadership skills, and how well he can fill Buffett’s enormous shoes. Jim Shanahan, an Edward Jones analyst, is optimistic. “There is a
good chance that Abel will demonstrate strength as operator,” he said. “I like the stock’s defensive characteristics as well.”
—Andrew Bary
The Supreme Court Arguments Over Tariffs Are Coming
The Supreme Court will hear arguments Wednesday about whether President Donald Trump had the authority to place tariffs on imports from around the world using emergency powers. The administration has insisted its so-called “reciprocal” tariffs announced in April are proper, while opponents say its Congress’ territory.
- A loss could force the return of $165 billion in customs duties collected this year. Treasury Secretary Scott Bessent said Sunday “We’ll cross that bridge when we come to it,” and noted to CNN that tariffs have been collected under other trade authorities, not just emergency powers.
- Wednesday plaintiffs in Learning Resources, Inc. v. Trump and Trump v. V.O.S. Selections are American businesses asking whether Trump has the authority under the International Emergency Economic Powers Act (IEEPA) to impose the tariffs or whether doing so violated the Constitution’s separation of powers.
- Last week, Senators voted 51-47 to stop the reciprocal tariffs. The largely symbolic vote was the third tariff vote of the week, all of them
succeeding with simple majorities, including a handful of Republicans joining all Democrats. The resolutions would have a difficult time passing the House and could be vetoed.
- Oregon Democrat Sen. Ron Wyden and Kentucky Republican Rand Paul introduced the reciprocal tariff resolution. Wyden said the levies, which vary by country of origin, raised costs for Americans, slowed business activity, and cost jobs, adding Congress should take back its power over trade.
What’s Next: Trump recently said he might attend the oral arguments in person, which would be a first for a sitting president. Asked whether that would happen, Bessent said Sunday that he hadn’t seen Trump’s schedule yet. Bessent told CNN that he himself wasn’t planning to attend.
—Liz Moyer
Shutdown Milestone Approaches as Signs of Deal Emerge
Signs that the government shutdown could soon end have begun to emerge. At least some senators have indicated that a resolution is in sight, including Majority Leader John Thune, who said last week that bipartisan talks had ticked up significantly even as he sent lawmakers home for the weekend.
- The shutdown is now in its 34th day. It’ll become the longest in history on Wednesday if an agreement isn’t reached. Democrats have insisted that they won’t back the bill funding the government without an extension of Affordable Care Act health plan subsidies. Republicans want the government open first.
