What We Thought of Berkshire Hathaway’s Earnings
Wide-moat Berkshire Hathaway reported adjusted first-quarter results that were about in line with our expectations. We are leaving in place our fair value estimates of $640,000 per Class A share and $427 per Class B share in place. First-quarter reported revenue, which includes unrealized and realized gains/losses from Berkshire’s investments and derivatives portfolios, declined 23.6% year over year to $91.7 billion, as the company lapped significant unrealized and realized investment gains during the first quarter of 2023. Excluding the impact of these investments and derivative gains/losses and other adjustments, first-quarter operating revenue increased 5.2% to $89.9 billion.
Operating earnings, exclusive of the impact of investment and derivative gains/losses, increased 39.1% year over year to $11.2 billion during the March quarter. While most of the company’s segments posted solid operating earnings growth, with insurance seeing the largest gain year over year (owing to continued underwriting strength), the railroad unit posted a high-single-digit decline. When including the impact of the investment and derivative gains/losses, reported operating earnings decreased 64.2% to $12.7 billion from $35.5 billion in the prior year’s period.
Book value per share, which still serves as a decent proxy for measuring changes in Berkshire’s intrinsic value, increased 1.2% sequentially and 13.3% year over year to $347,932 (from $389,372 and $347,932 at the end of December 2023 and March 2023, respectively). The company closed out the first quarter with $189.0 billion in cash and cash equivalents, up from $167.6 billion at the end of last year (as free cash flow reached $6.2 billion in the quarter and the company sold on a net basis $17.3 billion of its stock holdings while repurchasing $2.6 billion of its own shares). Berkshire, by our estimates, had around $147 billion in dry powder at the start of the second quarter of 2024
Berkshire Hathaway Inc Class B Stock vs. Morningstar Fair Value Estimate
“When you think about the potential for scamming people ... if I was interested in investing in scamming, it’s gonna be the growth industry of all time and it’s enabled, in a way” by AI, Buffett said at Berkshire Hathaway’s annual shareholder meeting on Saturday. Buffett pointed to the technology’s ability to reproduce realistic and misleading content to send money to bad actors.
Scammers are known to use AI voice-cloning and deep-fake technology to manipulate videos and images that impersonate an individual’s family and friends to ask for money or personal information.
“Obviously, AI has potential for good things too, but ... I do think, as someone who doesn’t understand a damn thing about it, it has enormous potential for good and enormous potential for harm — and I just don’t know how that plays out,” Buffett added.
AI has been the talk of Wall Street for more than a year, as investors bet on the technology’s potential to drive higher profits going forward. Stocks such as Nvidia and Meta Platforms have skyrocketed during the AI boom, up 507% and 275%, respectively since the end of 2022.
However, the investing legend admitted he’s not familiar with AI and likened its potential to that of the atomic bombs during the 20th century.
“I don’t know anything about about AI. That doesn’t mean I deny its existence or importance or anything of the sort,” Buffett said, speaking in a cautious tone. “We let the genie out of the bottle when we developed nuclear weapons and that genie has been doing some terrible things lately, and the power of that genie is what scares the hell out of me.”
“I don’t know any way to get the genie back in the bottle, and AI is somewhat similar. It’s part of the way out of the bottle, and it’s enormously important and it’s going to be done by somebody ... whether it’s going to change the future of society, we will find out later,” Buffett added.