Buffett Called the Market Overvalued — So Why Is Berkshire Buying $23.5B in Stocks? 📌

When Words and Actions Diverge 📌

There's an old investing adage that carries more weight than any earnings call: watch what people do, not what they say. Right now, that principle is being tested against the most closely followed investor on the planet — Warren Buffett.

In an early-May interview, Buffett was asked point-blank whether stock prices were too high. His answer was blunt: "Yeah." He added that prices for "a lot of things will look very silly" and that he'd never seen more people in a gambling mood.

Fast forward five and a half months, and the S&P 500 is up roughly 7% since that interview. But here's the twist that has investors scratching their heads: Berkshire Hathaway has simultaneously become more aggressive — not less.

Berkshire Flips the Script: From Seller to Buyer 🐂

In Q2, Berkshire became a net buyer of stocks for the first time in three and a half years. The conglomerate purchased roughly $23.5 billion in equities while selling only about $3.7 billion. That's a dramatic reversal from the prior stretch, when the company was aggressively trimming top holdings like Apple and Bank of America.

At the same time, Berkshire repurchased $4.5 billion of its own stock in the quarter — the first meaningful buyback since 2024, following a modest $235 million repurchase in Q1.

Why the Buyback Matters

Berkshire has historically only bought back shares when it believed its assets were trading below intrinsic value. The company once used price-to-book (P/B) ratios of 1.1x and 1.2x as guidelines, but scrapped those thresholds in 2018. Today, Berkshire trades above 1.5x book, though it dipped below 1.4x during Q2 — precisely when management was buying.

That timing is not a coincidence. It's a signal.

The market is split on whether Berkshire's buying spree is a bullish signal or a warning sign. Here's how both sides see it:

What Berkshire Is Actually Buying 🔍

Here's where it gets interesting. As of early October, over a quarter of S&P 500 stocks were 40% or more off their highs. A classic value investor might go bargain-hunting there. Berkshire did something different.

Alphabet now represents nearly 13% of Berkshire's equity portfolio, and together with Apple makes up roughly 35% of the total. Bending Spoons — an Italian digital holding company that acquires beaten-down tech firms and cuts costs — trades at a rich multiple and carries meaningful debt. Not exactly a traditional Buffett bargain.

The Valuation Tension

Backward-looking metrics like the CAPE ratio and AI funding concerns are flashing yellow. But forward-looking signals tell a different story: cumulative AI spending relative to GDP still looks early compared to past innovation booms, and the S&P 500's PEG ratio sits near historic lows. That's the gap Berkshire appears to be exploiting — buying growth at a reasonable forward price rather than chasing deep-value traps.

📊 In-Depth Fundamental Analysis

Scenario Analysis & The Takeaway 🎯

Best Case 🐂

• AI infrastructure spending compounds through 2027, forward earnings catch up to valuations, and Berkshire's Alphabet and Bending Spoons bets pay off handsomely.
• Buybacks at ~1.4x book prove accretive as intrinsic value grows.
• The S&P 500's low PEG ratio signals the rally has room to run.

Worst Case 🐻

• An AI bubble deflates, forward estimates get slashed, and Berkshire's leveraged Bending Spoons position amplifies losses.
• Elevated CAPE ratios revert to the mean, dragging megacap tech — and 35% of Berkshire's portfolio — lower.
• Buybacks at 1.5x book look expensive in hindsight.

Bottom Line

Timing the market is nearly impossible; time in the market has historically been the better wealth-builder. Berkshire's Q2 behavior — buying stocks, buying back shares, adding to AI-adjacent names — suggests management is dollar-cost averaging into a market it still considers expensive. That's a nuanced stance worth noting: cautious words, constructive actions. Investors should weigh valuation risk carefully, but Berkshire's own playbook argues against sitting entirely on the sidelines. 📌