← The Rundown
The Rundown
Berkshire Hathaway Shakes Up Portfolio, NextEra Makes Biggest Power Acquisition Ever
00:10:27
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Public.com presents the rundown, your daily market update in 10 minutes. My name is Zaydadmani and today is Monday, May 18th. In today's episode, we'll tell you why the odds of a Fed rate hike. I've jumped to nearly 50%. We'll also break down the $67 billion mega merger that's about to create the largest utility company in America. Then we'll get into how Berkshire Hathaway's new CEO is completely overhauling the portfolio. Finally, stick around to the end of the show to find why the AI startup space has turned into a duopoly. We got a great show for you today. Let's go. Markets had a speed bump on Friday. The S&P 500 dropped 1.2%. The Nasdaq fell 1.5%, basically wiping out most of the gains from last week. Overall last week, the S and P was up 2% while the Nasdaq fell 0.1%. Tech and Semi stocks were the biggest losers from Friday as investors took some money off the table from the AI trade and that set have a very interesting week ahead because on Wednesday Nvidia reports earnings and a strong report could reignite the trade again. So I'm looking forward to seeing what Nvidia has to say. We're also getting earnings from Target and Walmart this week as well, which should tell us more about how consumers are actually holding up and if they're being impacted by elevated oil prices. Speaking of oil prices, they're moving higher again this week. Brent crude is back above $110 a barrel as the straight up Hormuz remains closed. You know, I think the market was hoping for an Iran breakthrough during the U. S. China summit last week and that didn't happen. Not to mention things are starting to escalate again in the Middle East. Over the weekend, drones targeted a nuclear power plant in the uae. And now President Trump is turning up the pressure on Iran, saying the clock is ticking for a deal. There are also reports that President Trump plans to discuss military options against Iran this week. So this geopolitical risk is not going away. So all of that is now weighing on the market. And that's especially showing up in the bond market. The 10 year treasury yield, which is a key borrowing benchmark, is hit 4.6%. That's the highest level in a year. And this is important because higher treasury yields push up borrowing costs across the economy. I know we don't talk much about the bond market because it's pretty boring to be honest. But when it starts acting this way, it's worth paying attention to. And with the yields rising right now, it's a sign that the bond market is worried about inflation and higher interest rates from the Fed. In fact, the market is now pricing in a 50% chance that the Fed will hike rates that sometime this year. What's crazy is just a month ago the odds of a rate hike were just 1%. So just think about that for a second. We went from basically a 0% chance of a rate hike to now a coin flip in just 30 days. And that's why bond yields are rising right now when the stock market is selling off. So yeah, we have another interesting week ahead of us. You know, the AI and chips trade was carrying the market for the last six plus weeks, but now oil and inflation and bond yields are starting to push back. We'll see how things end up playing out this week and the next few weeks. We're going to stay on top of everything. So make sure you guys are subscribe to the podcast and tuning in every day to stay in the loop. Let's run through some headlines, starting with a massive deal in the energy space. Next Era Energy is buying Dominion energy in a 67 billion dollar all stock deal. If this deal goes through, it would be the biggest energy acquisition ever. And just like everything else in the market these days, this is an AI story. Next Era is already the largest utility in the S&P 500, worth nearly $200 billion. This company owns Florida Power and Light. It also is the largest renewable energy developer in the US and it also has natural gas and nuclear assets. Dominion Energy, on the other hand, powers Virginia, which is where a lot of data centers are located. So Next Era wants to get in the business of selling electricity to to data centers and that's why they're targeting this acquisition. This AI boom over the last couple of years has created an insane demand for power. All these AI data centers that are going up, they run 24 hours a day, seven days a week, and they use an enormous amount of electricity. And that's why tech companies are racing to lock up energy wherever they can find it. Now, as a combined company, Next Era and Dominion would have 10 million customers stretching from Florida up through the Carolinas and and Virginia. In fact, it would be the third largest energy company in America behind only Exxon and Chevron, with a valuation of around $250 billion. Now this deal still needs to be approved by state and federal regulators and that could take 12 to 18 months. At the time of this recording, Dominion shares are up around 11% on this news, while Next Era is down around 4%. But yeah, you know, this is a bigger trend happening here and I wouldn't be surprised if we see more utility companies consolidate so they can power data centers all over the country. Let's shift gears and talk about Berkshire Hathaway. The latest SEC filings dropped on Friday and new CEO Greg Abel is already making some big moves. After taking over for the legend Warren Buffett, Berkshire did a pretty big overhaul of their portfolio, dumping 15 stocks in the first quarter. Some of the names that were sold include Amazon, Visa, MasterCard, UnitedHealth, Domino's Pizza and a bunch of others. Now Berkshire did buy some stocks as well. The biggest move was tripling down on their Google investment. Berkshire increased its Google stake by 224%, making it now their seventh largest holding, worth about $16 billion as of the end of Q1. And that bet has already paid off because Google stock is up more than 35 since the end of Q1. The other notable move was a 2.6 billion dollar stake in Delta Airlines, giving Berkshire a 6% stake in the company. Now that one's interesting because Warren Buffett famously has a complicated history with airlines, the most notable being that he dumped all of his airline Stock Back in 2020 during the pandemic at their lows. And Berkshire hasn't invested in airlines until now. And finally, what stood out to me was that Berkshire also took a new position in Macy's, which I find to be interesting. The bottom line here is that Greg Abel is putting his stamp on Berkshire's portfolio. I'm really curious to see how the portfolio evolves over time. I got to say though, Berkshire's own stock has been terrible over the past year, down 5% while the S&P has surged more than 20%. So the pressure is going to be on Greg Abel to turn that around. Let's talk about some stocks making moves today. Cerebras shares are bouncing back this morning after closing down 10% in their first full day of trading on Friday. Cerebras went public last Thursday. And what was the largest tech IPO since Uber in 2019. The stock surged 68 on its first day of trading. This company makes AI chips that are designed to run AI models faster than traditional GPUs from Nvidia and AMD. And. And investors are jumping in. In fact, investors are just hyped about semiconductor stocks in general. The SOXX index, which tracks the 30 largest companies engaged in the design, distribution, manufacturing and sale of semiconductors is up more than 60% year to date. You know there are concerns that Cerebras valuation is too stretched and that the AI chips that they make are too niche. We actually broke down Cerebrz's business model and if they can live up to the IPO hype in this past weekend's deep dive episode. So go check that out if you want to learn more about the company and and the risk and upside for the stock. Now on the flip side, let's talk about a pharma company, Regeneron. Their shares are down after the company's experimental skin cancer treatment missed its main goal in a late stage trial. This drug that they were testing was used in patients with advanced melanoma, which is one of the most aggressive forms of skin cancer. But it failed to reach statistical significance in improving progression free survival compared with the market leader Keytruda, which is made by Merck. Progression free survival is also known as pfs. It's a measure of how long patients live live without the cancer worsening. So Wall street is not happy with the failed trial and analysts from Evercore said these results are the worst case scenario. And Citi downgraded the stock this morning, cutting their price target to 700, down from 900, saying the drug now doesn't warrant any commercial value. This is the second major disappointment from Regeneron. They failed another study last year for lung disease in former smokers. As a result, shares of the company are down more than 10% this morning at the time of this recording. Let's wrap the show with a fun fact. OpenAI and Anthropic make up 89% of the revenue from the top AI startups in the world. There was a report from the Information over the weekend that tracks 34 of the biggest AI startups. And combined these companies are generating nearly $80 billion in annualized revenue, which is more than double from just six months ago. But most of that revenue is going to Anthropic and OpenAI. So the AI startup world is pretty much a duopoly at this point. It's kind of like CO and Pepsi and no other AI startup has made a dent. What's funny is that Some of these AI startups like Cursor, are built on top of the OpenAI and Anthropics models. So that means that the revenues that these other AI startups are making is basically getting recycled right back to OpenAI and Anthropic. And that's why the valuations of OpenAI and Anthropic just keep going up. There was a report from Bloomberg the other day that Anthropic is looking to raise $30 billion at a $900 billion valuation. Now, here's the thing. Despite all the revenue that OpenAI and Anthropic are making, they're still burning through more than 30 billion a year combined, mostly on training AI models. So, yeah, they're making a ton of money, but they're also spending even more. They're not yet profitable. So that's why I'm really curious to see what happens to these companies when they hit the public market. Are public market investors going to be okay with OpenAI and Anthropic losing billions of dollars a year at such insane valuations? I mean, we're gonna have to see. We are in uncharted territories here. And that's why I can't wait for OpenAI and Anthropic to go public. Well, all right, guys, that's the rundown for today. Hope you guys enjoyed today's episode. If you did and you have like five extra seconds, consider giving us a five star rating on Apple, Spotify, YouTube, wherever you listen to your podcast. If you are listening on Spotify, don't forget to vote in today's Spotify poll. Leave us a comment on Spotify. All that engagement really does help us out and it helps other people find the show. Thank you guys again for listening, watching and commenting. Shout out to Mike for all the work behind the scenes and we'll see you guys back here tomorrow.
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