Chapter 1: What recent updates have been made regarding Berkshire Hathaway's leadership?
NASA doubles down on the moon? You're listening to Motley Fool Money with the Head & Gems team. Welcome to Motley Fool Money with the Hidden Gems team. My name is John Quast, and I'm joined today by Fool contributors Matt Frankel and Rachel Warren. Today we have some important developments with AI infrastructure and the space race.
But we first wanted to touch on a company near and dear to many of us, and that's Berkshire Hathaway. Now, Berkshire Hathaway is a trillion-dollar conglomerate. It has insurance operations, a railroad, Dairy Queen, don't want to forget that one. But maybe before we go any further, Matt, I think we need to pause and address the Omaha elephant in the room.
Why are we talking about a trillion-dollar company on The Hidden Gems Show? First of all, I think Pilot Travel Centers is the one I wouldn't want to forget because I can't do a road trip without them. It may sound weird that we're talking about a trillion-dollar company on hidden gems. It's really important to point out that a hidden gem doesn't have to be small or unknown.
It has to be, among other things, misunderstood. That's one thing we're looking for. Berkshire definitely qualifies. If you look at the price to earnings of Berkshire, for example, it looks very expensive. But you have to realize, there's more to Berkshire than just its operating businesses, which is literally a third of its value.
You have $370 billion in cash that doesn't show up in the earnings results. You have all the stocks they own, and all those companies' earnings don't show up in Berkshire's results. It's a really tricky company to value. In a lot of ways, it's really misunderstood how to analyze the company. Yeah, there's a lot of moving pieces, for sure.
The reason that we're bringing up Berkshire Hathaway today is, it was led by Warren Buffett for 60 years, but Warren Buffett has now stepped down from the CEO chair. That has allowed Greg Abel to step up. On Saturday, Abel released his first letter as the CEO to shareholders. Here on the Hidden Gems team, we love talking about leadership.
Matt, I was just wondering, what stood out to you in this inaugural letter from Greg Abel? Of course, he went through the motions of discussing the business segments, insurance, and all that stuff. But the main theme was really to reassure investors that not much is going to change, and in a very good way.
He cited Charlie Munger's comment that was made shortly after they announced that Greg Abel was going to be CEO. Charlie Munger said, Greg will keep the culture. He discussed maintaining the decentralized model, where all of Berkshire's subsidiaries operate pretty independently, all the value Warren Buffett placed on corporate integrity over profits. There were some very famous quotes about that.
Similar thoughts on Berkshire's cash hoard, what Buffett said about risk management, capital allocation, and all the other things that make Berkshire Berkshire.
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Chapter 2: What insights did Greg Abel share in his first letter to shareholders?
It's also investing in the human side of things. But this is more than just securing a funding bag. With NVIDIA and Amazon in particular, the funding is also a partnership deal. Matt, is there anything from these partnerships with NVIDIA and Amazon, with OpenAI, anything that we need to pay attention to? It feels like at least once a week, we're hearing about new partnerships OpenAI is forming.
It would probably be shorter to tell you the list of large-cap tech companies they're not partnering with at this point. But it's worth noting that these were rather large investments, even by OpenAI, Amazon, and Nvidia's standards. The whole funding round came from three companies. Amazon is committing $50 billion, Nvidia is accounting for $30 billion.
The rest came from SoftBank, if you're curious. Based on the $730 billion, that's the pre-money valuation, so add the $110 billion and it's even more. This means that Amazon and Nvidia both bought stakes of 6% and about 3.5% of the business of OpenAI. That's in addition to any prior investments they made. Nvidia has been an investor since at least 2024, for example.
With Amazon, the partnership, in addition to everything that Rachel was talking about with the hardware and things like that, OpenAI is going to help develop customer-facing applications, presumably things like agentic commerce tools and things like that, to deploy across Amazon's platform. That's a pretty high potential tech trend that we're still just seeing roll out.
With both of those, Rachel's right, a lot of this is essentially prepaying for compute power, though. OpenAI recently revised their spending number downward to $600 billion by 2030. They're going to need some money.
I think it's so interesting that many of these AI companies now, they're measuring what they're building in terms of gigawatts of electricity that they need, not so much how many of the physical components of the hardware that they need. Just as a follow-up here, Matt, is there anything in the AI infrastructure space that you want to highlight here in light of OpenAI's recent funding round?
They're going to need more money, as I said. That's one thing I do want to highlight. They even came out and said that they expect this funding round to be ongoing. They're not capping it at $110 billion. In the AI infrastructure space, I'd say that the data center companies are really worth a look right now.
They're an interesting below-the-radar beneficiary of literally everything Rachel was talking about with prepaying for compute power and things like that. I'm a big fan of that part of the industry. I have to ask, is this the final funding round, do you think, before we see an OpenAI IPO on the public market? My gut feel is yes, but I'm curious as to what Rachel says.
I think it's possible, but I also think we're in a time where the company is spending so rapidly. I wouldn't be surprised if they seek another round of investment before dipping their toe in the public market, so to speak. But whenever, if and or when, that IPO happens, I think a lot of investors are going to be very excited to see what's in store. It'll be a momentous day, without a doubt.
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