Berkshire Hathaway (BRKA 0.36%) (BRKB 0.40%) is not as technology-shy as it once was. Over the past few decades, the holding company, led by Warren Buffett until his retirement in 2025, has increased its exposure to tech stocks.
Currently, this includes not just its large position in Apple (AAPL +0.33%), but also a burgeoning position in Alphabet (GOOG 1.46%) (GOOGL 1.39%), parent company of Google and YouTube. Many would also classify both of these “Magnificent Seven” stocks as artificial intelligence plays.
However, some will debate whether these represent “pure-play” AI stocks in the same sense that names like Nvidia or Palantir do. But Berkshire Hathaway has AI exposure in other ways, namely, through one of its wholly owned operating subsidiaries.
Berkshire bought this company many years ago and, for a while, considered it an unsuccessful acquisition. Yet thanks to the data center proliferation, Berkshire Hathaway’s 2016 purchase of Precision Castparts for $37.2 billion is starting to look like a winning move.
Image source: The Motley Fool.
From one specialty market to another
Based in Portland, Oregon, Precision Castparts makes specialty metal components for the aerospace and industrial sectors. This aerospace exposure may have been why Buffett and Berkshire saw the company as a buy in 2016, but during the height of the COVID-19 pandemic in 2021, even Berkshire Hathaway admitted that it was an ill-fated deal.
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That year, Buffett’s holding company wrote down nearly $10 billion in goodwill related to the Precision Castparts purchase, citing the subsidiary’s diminished value due to the pandemic’s impact on air travel and, hence, demand for aerospace.
Now, however, the situation has improved dramatically. Beyond a rebound in aerospace demand, chalk up Precision Castparts’ improved performance to another factor: the AI data center boom. As hyperscalers turn to gas-powered turbines to power data centers, and as these turbines use similar components to those in jet engine turbines, Precision Castparts, one of just a few companies in this niche industry, is cashing in big-time.
After generating just $900 million in annual operating cash flow during the pandemic-era slowdown of 2021, last year, Precision reported $2.4 billion in operating cash flow. For reference, the company’s annual operating cash flow was around $1.7 billion just prior to its acquisition by Berkshire.
The takeaway for Berkshire and its AI exposure
Make no mistake: Precision’s indirect AI exposure by no means turns Berkshire Hathaway into a “pure-play” AI stock. The trillion-dollar conglomerate’s interests in sectors like insurance dwarf its exposure to the technology sector, let alone to the AI megatrend.
Still, this opportunity didn’t emerge from Berkshire chasing trends. Berkshire bought Precision Castparts, sensing that the company had a deep economic moat. Recent developments validate this thesis. Precision’s edge in turbine components opened the door to the data center opportunity.
This takeaway can be applied to Berkshire. By purchasing high-quality assets and investments at fair prices and holding them for the long term, Berkshire is well positioned to benefit from emerging economic trends.
Only time will tell whether Greg Abel, Warren Buffett’s successor, increases Berkshire’s AI exposure. Yet if it continues to prioritize long-term quality over trends, similar situations to those at Precision Castparts could emerge.
