Warren Buffett’s Berkshire Hathaway is experiencing its largest year-to-date underperformance against the S&P 500, trailing by 16.3 percentage points. While the S&P surged due to red-hot tech and AI stocks, Berkshire’s conservative stance and minimal AI exposure have led to its stagnation. Separately, a significant railroad merger opposed by Berkshire’s BNSF has been paused by regulators, adding another layer of complexity to the conglomerate’s recent activities.
This special edition of the Warren Buffett Watch newsletter delves into Berkshire Hathaway's recent underperformance against a surging S&P 500, highlights a critical railroad merger development, and revisits Buffett's long-standing skepticism towards tech investments.
Berkshire trails red-hot S&P by biggest margin so far this year
As red-hot tech stocks propelled the S&P 500 to a fresh record high with a robust 5.1% gain in May, Warren Buffett's Berkshire Hathaway experienced a starkly different trajectory, with its shares remaining largely unchanged for the month. This significant divergence has widened the gap between Berkshire's widely held B shares and the benchmark S&P 500 to 16.3 percentage points year-to-date, marking the largest margin of underperformance so far in 2026.
Reflecting on earlier in the year, Berkshire had actually held a small lead of 1.8 percentage points over the S&P by the end of March. However, the landscape shifted dramatically in April and May, as the S&P zoomed more than 35% higher, while Berkshire saw its shares dip almost 11%.
This performance disparity is largely attributed to the S&P's heavy concentration in market-capitalization-weighted tech stocks, which have been supercharged by soaring expectations for AI profits and massive infrastructure investments. In contrast, Berkshire maintains an extremely conservative investment strategy, boasting minimal exposure to the AI sector, a substantial cash pile approaching $400 billion, and a portfolio of solidly profitable, albeit less spectacular, operating companies.
Warren Buffett's cautious approach to high-flying tech mirrors his decision to avoid internet stocks during the late 1990s dot-com bubble, a move that ultimately proved prescient. Many market watchers are now issuing warnings about a potential 'AI bubble,' a concept that has even garnered its own Wikipedia page, suggesting that Berkshire's conservatism might once again pay off over the long term.
Interestingly, despite Berkshire's generally hands-off approach to cutting-edge tech, new CEO Greg Abel appears to have made a notable, and somewhat un-Buffett-like, move by tripling the company's Alphabet (GOOGL) stake during the first quarter. Valued at almost $22 billion, Alphabet now stands as Berkshire's fifth-largest equity holding in the portfolio.
Berkshire shares have also seen a 12% decline since reaching their all-time closing high in May of last year, a period coinciding with Buffett's announcement of his plan to step down as CEO at the end of 2025. According to analysis by 22V Research, as reported by CNBC.com, Berkshire's relative performance ratio against the S&P has plummeted to its lowest levels since 2007, indicating a potential shift in its historical role as a market bellwether.
Regulatory delay for railroad merger opposed by Berkshire's BNSF
In other significant news, the U.S. Surface Transportation Board (STB) has paused its review of the proposed $85 billion merger between Union Pacific (UNP) and Norfolk Southern (NSC). This merger, if approved, would create the country's first transcontinental freight railroad. The regulator requires more detailed information from the companies by late July regarding the potential impact on competition, citing several unclear and underdeveloped aspects of their revised application.
This delay could push a final decision until the fall of 2027. Berkshire's own BNSF Railway, which has been critical of the merger from its inception, deems it anti-competitive. BNSF is a key member of the 'Stop the Rail Merger Coalition,' an alliance recently formed with rival railroads, customers, and labor unions to oppose the deal.
Last August, BNSF announced a strategic 'collaboration' with CSX to offer seamless, coast-to-coast shipping solutions. However, any speculation that Berkshire might counter the UNP-NSC deal by acquiring CSX was quickly dismissed by Warren Buffett himself, who stated to CNBC that the company was not in the market for any railroad acquisitions.
Buffett's Enduring Stance on Tech (1999)
A look back at CNBC's Buffett archive reveals a 1999 interview where Warren Buffett articulated his investment philosophy during the dot-com bubble. He famously stated he would rather invest in traditional companies like Coca-Cola over tech giants like Microsoft, explaining, "I don't have to bet." Buffett emphasized his willingness to "trade away a big payoff for a certain payoff," highlighting the greater predictability of the soft drink industry compared to the rapidly evolving software world.
This video clip from the 1999 Berkshire Hathaway Annual Meeting encapsulates Buffett's rationale for his conservative investment philosophy, particularly concerning rapidly evolving technology sectors. He conceded that others with superior knowledge might profitably navigate the tech sector, but for him and Charlie Munger, it remained outside their "circle of competence." Munger concurred, raising questions about the long-term saturation of the tech field as bandwidth and options expand.
Berkshire Stock Watch & Top Holdings (May 29, 2026)
As of the publication date, Berkshire Hathaway's Class A shares (BRK.A) were priced at $710,900.00, and Class B shares (BRK.B) at $474.48, with a TTM P/E of 14.13. The company's market capitalization stood at $1,022,973,515,650. Berkshire's cash reserves as of March 31, 2026, increased by 6.5% from December 31, reaching $397.4 billion (or $380.2 billion excluding rail cash and subtracting T-Bills payable, up 3.0%). In Q1 2026, Berkshire repurchased $234 million of its shares.
Berkshire's top equity holdings, based on market value, for publicly traded stocks in the U.S. and Japan as of March 31, 2026 (except Mitsubishi, as of April 30, 2026), are available through CNBC.com's Berkshire Hathaway Portfolio Tracker, reflecting the latest closing prices.
Questions or Comments
For any questions or feedback regarding this newsletter, please contact alex.crippen@nbcuni.com. To subscribe to the Warren Buffett Watch newsletter, visit here. Additionally, Warren Buffett's insightful annual letters to shareholders are highly recommended reading and can be found on Berkshire's website.
-- Alex Crippen, Editor, Warren Buffett Watch
