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" Valuation
Berkshire bought the last 8% of BHE at a price implying ~$49 billion total value, which was roughly 1x book value ($50 billion).

The bear case is that even with AI growth, BHE's valuation shouldn't be much higher because it's fundamentally a regulated utility with ~10% ROE cap, unlike tech companies that can scale profits exponentially. Realistically, BHE will steadily create value but not deliver incredible alpha in terms of ROI, given the capital intensity of projects and earnings growth likely in the mid-to-high single-digits. The contribution to Berkshire's valuation is also not a dramatic upside swing. Nonetheless, the energy thesis is resilient right now, and at very least, BHE will provide capital security to Berkshire's diversified, fundamentally-oriented portfolio.

At the implied ~$49 billion valuation, BHE constitutes approximately 5% of Berkshire's market cap (around $1T). It's very plausible for the market to start re-rating BHE as the AI thesis compounds over the next decade. BHE may start to incrementally deserve a higher multiple like peers (e.g. 1.8x book given its renewable growth profile and structural resiliency across multiple core data center regions). That would make its value more like $80–90 billion, adding $30–40 billion to Berkshire's sum-of-parts over what the purchase price implied. Also, BHE's retained earnings will compound within Berkshire. I would be interested in owning shares in BHE if it was spun-off and hope to see this happen in the Abel-as-Berkshire-CEO era.

Risks
Honing in on the regulatory risk, if public utility commissions fear that residential customers will subsidize Big Tech's power needs, there could be push back on projects or returns. For example, regulators halved NV Energy's proposed rate increase for new transmission. In Iowa, there's concern that ratepayers not foot the bill for data center-driven expansion. There's some logic that AI companies should bear the cost, which would reduce BHE's profit opportunity.

There's also a risk that BHE overbuilds capacity, expecting demand that then doesn't materialize on time. Efficiency gains in chips or a shift to distributed computing could slow the growth in power needs. Prudency reviews might then disallow recovery on unused investments.

Utility infrastructure, especially in the U.S. West, carries operational risks that can lead to large financial hits (consider the lawsuits from the 2020 Oregon wildfires). Limiting wildfire risk is now a top priority for BHE and it comes with increased operating and capital costs that could strain margins.

If natural gas prices spike, electricity prices would rise, and regulators may delay other increases or push for rate reductions in BHE's domains. Also, distributed energy (solar + battery) could cut into utility sales if large customers choose to self-generate. If AI firms start bypassing utilities, BHE's growth could be more moderate in the long term than the bull case would assume. But given the current scale of demand there's limited near-term risk.

Conclusion: Buy
Berkshire Hathaway Energy is emerging as one of the clearest, least-recognized beneficiaries of the AI boom as hyperscale data centers and GPU clusters drive unprecedented electricity demand. BHE has developed a regulated footprint across Nevada, Iowa, Utah, and Oregon, which are all key U.S. tech regions and make the company positioned formidably in the growth path.

Berkshire now has full ownership of BHE, giving it capital flexibility and allowing it to deploy billions into new generation, transmission, and renewable assets without shareholder dilution; this will allow BHE to capture strong and durable returns.

That said, growth will be steady rather than exponential, but BHE offers structural resilience, inflation-linked earnings, and exposure to one of the century's most critical bottlenecks. If you view Berkshire as a sum of the parts, BHE is a defensive compounder and a strategic lever for AI-era value creation. Buy."

This article was written by


Oliver Rodzianko
5.52K Followers
Oliver Rodzianko is the Founder and CEO of Invictus Origin, managing the Invictus Hydra portfolio, a high-alpha strategy consistently outperforming the Nasdaq-100 with disciplined cash deployment during market dislocations.


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Gary Kime
Today, 7:47 AM


https://seekingalpha.com/article/4830940-berkshire...

"Also, distributed energy (solar + battery) could cut into utility sales if large customers choose to self-generate. If AI firms start bypassing utilities, BHE's growth could be more moderate in the long term than the bull case would assume."


These words from the previously quoted article are the ones most likely be the case going forward. As you may know, there is presently a multi-year lead time for jet engine turbine type natural gas fueled electricity power generation equipment. There are also other alternatives like Bloom Energy using natural gas in fuel cell types of systems to produce on-site power for AI sites. Then there is modular nuclear. We keep hearing it is coming one day.

Buffett made the case clearly in recent annual meetings for states and federal governments to work together to allow new transmission lines and the upgrading of existing transmission lines. My view is this will not happen because of political polarization. As a result, on-site power generation will be the methodology with North American AI sites located in natural gas rich areas like Texas and Canada.

BHE is a valued business unit and provides steady cash flow and modest growth. It may get some tailwind through energy sales to AI centers. In this case the word "some" means a modest bump in electricity sales but not the whole enchilada as AI sites increasingly make on-site power generation part of their build-out. AI sites will become more energy efficient as better chips inevitably come to market. Exorbitant profit breeds ruinous competition and cheaper and more efficient chips are sure to be coming.

I still love Berkshire while knowing its best value growth days are in the past. I'm settling for modest growth, avoiding paying taxes on multiple decades of gains and having a PFD safety factor(personal flotation device) as the debt cycle eventually tips the boat over a bit too far.

A financially oriented podcast recommended Barton Biggs' book "Wealth, War and Wisdom". Turns out it is more of an in-depth history book than an investment guide. Basically, Biggs goes through the major events of the 20th century which were mostly wars. Some stunning information was learned I had not previously contemplated. For example, the German stock market experienced rapid value escalation from 1938 to 1941. Only a few Germans moved a portion of their gains into UK, Swiss or USA holdings with the great majority holding on to what they had because they felt valuations would continue to soar. The war front in the east (Russia) ended the optimism in 1941 and stocks fell to being worth only a small fraction of their 1941 value by 1946. As bad as it was for long term holders of German equities, the long-term holders of equities in Poland's and Hungary's companies did not even have small fractions of ownership in their pre-war holdings as there was no stock exchange, no private ownership and thus no value after the Soviet's implemented communism in those countries. It is sobering to see how history played out. I've been steadily buying non-US companies with reasonable moats at MOS valuations and plan to do more as investable cash accumulates. The big difference they will not be ADRs and instead will be held in the currency of the country where these companies are headquartered. If it can be done without triggering a tax event, I plan to change our existing ADR holdings to that format.

Nobel Laureate Harry Markowitz famously called diversification “the only true free lunch in investing.” Eventually having a portfolio with, say, 20% in quality non-USD companies located in multiple countries is my version of a PFD, especially when periodic opportunities to buy these companies for less than Buffett's 10X EBIT to market capitalization happen.

Reading and Researching,

Uwharrie

BTW, I welcome hearing opinions from my fellow Berkshire board colleagues for how to improve one’s financial survival odds going forward.

As D. Rumsfeld said, “We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns—the ones we don't know we don't know.”

Please speak up and while I agree with Warren Buffett and Charlie Munger, it’s okay to opine about gold and Bitcoin if that’s in your portfolio. I am asking for crowdsourced help for ways to deal with whatever is coming our way as investors.

Humbly submitting to the board’s collective knowledge,

Uwharrie

I welcome hearing opinions from my fellow Berkshire board colleagues for how to improve one’s financial survival odds going forward.

I'm physically out, and working on being financially out of the US - hope to move as much money out of USD to EUR and other currencies, in non-US financial institutions, as reasonably rapidly as I can. Trying to qualify within a few months for the PT tax regime that lowers tax rates to, roughly, my US tax rates. That will mean taking a lot of long-term capital gains soon, and I can't do much about the 45% of assets in IRAs for a few years.

As for what to do with the money once it's expatriated, more research needed, but I'm thinking a mix of EU government bond funds that can be expected to roughly keep up with inflation, and a certain amount in EU defense companies, energy infrastructure, and such. I don't actually need more capital gains to live decently for the rest of my life - if I manage to avoid the major capital losses as the Former US collapses into a dictatorship with the economic and legal stability of Russia or Venezuela.

YMMV.

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