Berkshire Hathaway Rose While Every Major Chip Stock Fell Monday

Berkshire Hathaway's (NYSE:BRKA)(NYSE:BRKB) B shares rose about 1.3% Monday morning, to about $502 as of this writing, while the market's chip complex went the other way.

Nvidia fell about 2%, down for a seventh session in a row. Advanced Micro Devices dropped about 3%, Broadcom about 2%, Intel about 3%, and Micron Technology about 5%.

That is every major chip stock down on a day the S&P 500 (SNPINDEX:^GSPC) slipped only modestly, and the biggest conglomerate in the index up more than a percent.

A divergence this clean on one day can be noise. But this one has a logic to it, and I think the logic is worth understanding even if Monday doesn't repeat.

Image source: Getty Images.

A $360 billion pile of cash and Treasury bills

Berkshire attracts money on days like this because of what it owns.

At the end of June, the conglomerate held about $35 billion in cash and about $325 billion in short-term U.S. Treasury bills in its insurance and other businesses -- about $360 billion combined. That money is not a bet on anything. It earns interest while it waits, and no sell-off in artificial intelligence (AI) infrastructure touches a dollar of it.

The operating businesses sit just as far from the build-out. Berkshire's earnings come from car insurance and reinsurance, a railroad, electric utilities, and dozens of manufacturers and retailers.

Second-quarter operating earnings rose 16% year over year to about $13 billion. The manufacturing, service, and retailing group grew 24%, Berkshire Hathaway Energy's earnings climbed 27%, and the BNSF railroad earned about $1.6 billion, up 6% year over year.

Insurance was the soft spot. Underwriting earnings fell 13% year over year, and insurance investment income slipped 9% to about $3.1 billion. None of those results depends on the price of a graphics processing unit.

Even the stock portfolio leans away from the theme.

Berkshire's biggest holdings are Apple, American Express, Alphabet, Coca-Cola, and Bank of America -- consumer and financial franchises, except for one. The Alphabet stake, worth about $37 billion after roughly $17 billion of buying in the second quarter, is Berkshire's one large bet adjacent to AI. The portfolio holds no chipmaker at all.

Earnings that don't need the boom

Of course, Berkshire isn't immune to a market decline. In a real downturn, its railroad hauls less freight and its stocks fall with everyone else's.

The point is narrower. Berkshire's earnings power doesn't require the AI spending boom to continue. Monday, that independence was what investors paid for.

The nervousness has been building for a week. The iShares Semiconductor ETF fell 5.5% last week before Monday's drop, and Nvidia reports earnings Wednesday after the close. Gold, meanwhile, hit its highest level since May. Money is playing defense.

Berkshire has also been supporting its own stock. The company repurchased about $4.5 billion of its shares in the second quarter, a sharp step-up from the $235 million it spent on buybacks in the first. And Berkshire was a net buyer of about $20 billion of stocks during the quarter -- evidence the conglomerate still sees value in equities.

Defensive day or rotation?

So is Monday the start of something, or just a nervous session?

One day can't say. After all, Berkshire's B shares remain nearly 7% below their 52-week high of $537.74. The stock has hardly been the market's darling this year while AI growth stocks soared, and a single green Monday doesn't reverse that.

What can be said is what a buyer pays for the defensive qualities. At about $502, Berkshire's market value is about $1.1 trillion, which works out to about 21 times its annualized operating earnings. The reported price-to-earnings ratio is lower, at about 12, but that figure includes large investment gains that swing from quarter to quarter. On the steadier operating basis, Berkshire is arguably not the discount it was a few years ago.

Still, the stock offers something scarce right now, and Monday showed there's demand for it. Berkshire's earnings arrive either way, because premiums and freight don't wait on the AI build-out. And the $360 billion in cash and Treasury bills becomes more useful, not less, as other assets get cheaper.

At about 21 times operating earnings, none of that comes at a discount anymore. But on the first day in a while that investors seriously doubted the chip complex, Berkshire is what they bought. I don't think that is a coincidence.

Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Daniel Sparks and his clients have positions in Apple and Berkshire Hathaway. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, American Express, Apple, Berkshire Hathaway, Broadcom, Intel, Micron Technology, Nvidia, and iShares Trust - iShares Semiconductor ETF. The Motley Fool has a disclosure policy.