Berkshire's Contrarian Gambit: Betting on Energy and AI in a Skeptical Market

Warren Buffett once famously advised investors to “be fearful when others are greedy, and greedy when others are fearful.” In a market oscillating between anxiety over inflation, interest rates, and AI's uncertain future, Berkshire Hathaway's Q1 2025 moves exemplify this contrarian ethos. Amid widespread skepticism toward energy and AI-driven stocks, Berkshire has doubled down on Occidental Petroleum and a select group of artificial intelligence-linked firms. These moves highlight a strategy of seeking undervalued opportunities in sectors shunned by the herd—a masterclass in capital allocation during volatility.

The Energy Contrarian Play: Occidental Petroleum

Berkshire's 27% stake in Occidental Petroleum ($13.1 billion) is its sixth-largest equity holding, a position that defies the ESG-driven exodus from fossil fuels. While renewable energy stocks and ESG funds dominate headlines, Occidental's operational strengths—its Permian Basin reserves, downstream refining, and chemical operations—have kept it profitable even as oil prices fluctuated.

The Non-Controlled Businesses & Other segment, which includes Occidental, saw a 96% drop in operating earnings in Q1 2025 due to foreign currency losses. Yet this decline is temporary: Berkshire's foreign currency assets offset these headwinds, and Occidental's core performance remains robust.

Berkshire's bet here is twofold. First, it profits from Occidental's operational efficiency and diversified revenue streams, which shield it from commodity price swings. Second, it stakes a position in an undervalued sector: energy stocks trade at historic lows relative to earnings, despite long-term demand from emerging economies and petrochemical industries.

Investment Takeaway: Energy's reputation as a “dirty” sector has created a buying opportunity. Investors should look for firms like Occidental, which combine strong balance sheets with exposure to both traditional and chemical markets.

The AI Contrarian Play: Quality Over Hype

Berkshire's $92 billion AI-linked portfolio—33% of its equity holdings—focuses not on speculative AI startups but on companies with proven cash flows and consumer reach. Key holdings include Apple ($60.3B), Amazon ($2.1B), and BYD ($2.7B), alongside five Japanese trading houses ($27B).

Apple, Berkshire's largest single holding, underscores Buffett's pragmatism. While its AI efforts like the Apple Intelligence platform lag competitors, Buffett's bet is on its brand loyalty, capital returns, and dominance in premium hardware. Similarly, Amazon's AI investments in AWS (custom chips, generative tools) are a secondary benefit to its core strengths in cloud infrastructure and retail logistics.

The Japanese trading houses—Mitsubishi, Itochu, etc.—are valued for their diversified operations and shareholder-friendly policies, not their marginal AI applications. This reflects Buffett's creed: invest in companies that can generate cash regardless of tech trends.

Investment Takeaway: Avoid chasing AI “moonshots.” Instead, prioritize firms with sustainable earnings, strong balance sheets, and AI as an incremental growth tool, not a lifeline.

Navigating the Risks

Berkshire's Q1 results ($4.6 billion net profit vs. $12.7B in 2024) underscore the risks of contrarian bets. Insurance losses from California wildfires and sluggish railroad (BNSF) performance dragged down earnings. Yet the utilities segment (BHE) grew 53%, and cash reserves remain a fortress at $342 billion—a buffer to weather market storms.

The Contrarian's Playbook

1. Focus on fundamentals: Ignore short-term sentiment. Occidental's Permian Basin assets and Apple's cash flows are timeless.
2. Avoid the extremes: Steer clear of overhyped AI stocks or energy companies without balance sheets to survive volatility.
3. Leverage liquidity: Like Berkshire, maintain a cash cushion to pounce when others panic.

As Buffett prepares to hand the reins to Greg Abel, his Q1 moves reaffirm that contrarian investing isn't about timing the market—it's about owning what others fear, but time will reward. In a world of uncertainty, that's a strategy worth copying.