Berkshire trails S&P 500 by 16.3 points as AI rally widens gap

Berkshire Hathaway's B shares lag the S&P 500 by 16.3 percentage points year to date, the widest gap since 2007.

"The relationship between Berkshire and the S&P appears to be changing," 22V Research said in a note to clients, as the firm's relative performance ratio dropped to its lowest level since 2007.

The S&P 500 gained 5.1% in May to close at a fresh record, extending a rally that has pushed the benchmark up 9.8% this year. Berkshire's B shares were little changed in May and have fallen 12% from their all-time closing high set in May 2025, before Warren Buffett revealed plans to step down as CEO. At the end of March, Berkshire held a 1.8 percentage point lead over the S&P 500. The benchmark then surged more than 35% in April and May while Berkshire fell almost 11%.

The divergence shows the tension between AI-driven momentum and value-oriented investing. Berkshire holds $397.4 billion in cash as of March 31 and has minimal exposure to artificial intelligence, a stance that paid off when Buffett avoided internet stocks during the late 1990s dotcom bubble.

The information technology sector, which accounts for 35% of the S&P 500's market-cap-weighted composition, has driven the bulk of the index's gains. Nvidia, Apple and Microsoft alone carry a combined market capitalization of $12.8 trillion, according to Vanguard data. Excluding the information technology sector, the S&P 500's five-year return drops to 47% from 78%, a sign of the AI industry's outsize influence on the current bull market.

Berkshire, by contrast, holds $397.4 billion in cash and Treasury bills as of March 31, up 6.5% from the end of 2025. New Chief Executive Officer Greg Abel did make one notable AI-adjacent bet, tripling Berkshire's stake in Alphabet to about $22 billion during the first quarter, making it the fifth-largest equity holding in the portfolio. The move was a departure from Buffett's traditional avoidance of technology giants.

The S&P 500 trades at 21.8 times forward earnings, a level that JPMorgan has said history suggests will deliver below-average annual returns of less than 5% over the next decade. Berkshire's Class B shares trade at a price-to-earnings ratio of 14.13, according to the Warren Buffett Watch newsletter. Berkshire repurchased $234 million of its own shares in the first quarter.

Berkshire's BNSF railroad has joined a coalition opposing the proposed $85 billion merger between Union Pacific and Norfolk Southern, calling it anti-competitive. The Surface Transportation Board has delayed its review, pushing a final decision potentially into the fall of 2027. Buffett told CNBC last August that Berkshire was not in the market to buy any railroad, shooting down speculation it would counter with a bid for CSX.

This article is for informational purposes only and does not constitute investment advice.