For decades, Berkshire Hathaway (BRK.A, BRK.B) carried a "Buffett premium," a valuation uplift tied to investor confidence in Warren Buffett’s(Warren Buffett's Portfolio) judgment. But as Buffett prepares to step down as CEO in 2026, that premium appears to be cooling. According to Barron’s, Berkshire shares are projected to rise about 11% by 2025, trailing the S&P 500’s 16% gain. This underperformance is not a one-off—it reflects a trend that has persisted for several years.
Valuation Trends
Berkshire’s price-to-book ratio has slipped to 1.65, down from past highs above 1.8. Its forward P/E ratio is about 24, lower than the previous 26. While these figures remain above long-term medians, they suggest investors are applying more cautious scrutiny. The fading premium reflects both Buffett’s looming departure and the company’s limited exposure to high-growth sectors like AI and cloud computing.
Strong Fundamentals, But Few Highlights
Despite valuation cooling, Berkshire’s insurance business remains a core driver, with operating income reaching $14.5 billion in Q4 2024, up 71% year-over-year. Cash reserves have swelled to over $300 billion, underscoring financial strength. Yet Buffett has refrained from major acquisitions or stock purchases in recent years, signaling difficulty in finding "good companies at reasonable prices."
Meanwhile, Berkshire’s railroad (BNSF) and energy units face profit pressures from slowing freight growth, rising costs, and new energy policies. These businesses retain long-term value but lack near-term catalysts.
Portfolio and Buyback Signals
Apple (AAPL-US) remains Berkshire’s largest holding, but Buffett trimmed the position in 2024, raising questions about future asset allocation. The company’s reduced share buybacks since mid-2024 also send a signal: Buffett no longer views Berkshire stock as "cheap." For investors, that’s a telling indicator of valuation normalization.
Leadership Transition
Buffett will step down as CEO in 2026, with Vice Chairman Greg Abel set to succeed him. Abel is expected to preserve Berkshire’s culture, but analysts doubt he can replicate Buffett’s charisma or track record in capital allocation. The transition adds uncertainty, further cooling the premium investors once attached to Berkshire shares.
Outlook
Berkshire remains stable, conservative, and transparent, with one of the strongest balance sheets in corporate America. Analysts argue its value may shine again during periods of market volatility, when defensive strategies regain appeal. But in today’s AI-driven bull market, Berkshire’s cautious approach has left it trailing peers.
As Barron’s notes, Berkshire is entering a neutral era: reliable and resilient, but no longer expected to consistently outperform. The "Buffett premium" is fading, and valuation is normalizing—marking the start of a transitional chapter for one of America’s most iconic companies.