FOMC meeting minutes in focus

Analyst thesis

Our recommendation is based on:

• Diversified conglomerate with permanent capital advantage: Berkshire’s insurance operations generate a substantial float, providing a large, low-cost funding base that supports acquisitions and long-term investments. Its wholly owned subsidiaries span insurance, railroads, energy, manufacturing, and retail, contributing to diversified earnings and cash flows across economic cycles.

• Record cash reserves support strategic optionality: Berkshire held a record cash and US Treasury Bills at 4Q25, reflecting disciplined capital allocation and a fortress balance sheet. This substantial liquidity, combined with strong operating cash flow, provides capacity for large‑scale acquisitions and opportunistic deployment.

• Leadership transition introduces near term valuation risk: Warren Buffett’s exit creates the risk of removing a long-standing ‘Buffett premium’ from Berkshire’s valuation, reflecting his exceptional capital allocation track record. Any missteps by successor Greg Abel could lead to the shares trading at or below fair value rather than at a premium, as investors reassess management quality and execution risk.

• Valuation supported by quality and balance sheet strength: While Berkshire trades at a premium to its long-term average book value multiple, its diversified earnings base, conservative leverage and strong balance sheet provide support for steady intrinsic value growth. Relative to its quality, track record and financial resilience, we see scope for continued long-term outperformance versus the broader market.

Analyst thesis

Our recommendation is based on:

• Alphabet is successfully defending its core advertising and search engine businesses by evolving keyword-based search into conversational intent. The integration of Gemini into Search not only protects the Group's competitive position; it expands it by surfacing higher-value, targeted ads within artificial intelligence (AI) overviews.

• YouTube is undergoing a long‑term shift. Short videos (shorts) and connected TV (CTV) viewing help brands reach vast audiences and build awareness, while new shopping features allow viewers to purchase products directly from the videos. Together, this helps YouTube turn attention into sales and helps boost advertising revenue.

• Google Cloud remains the primary growth accelerator, fuelled by a $240 billion backlog. The current surge in AI workload demand is expected to unwind into a mature, high-margin utility phase by 2028.

• Alphabet has raised its 2026 CAPEX guidance to $185 billion, signalling a strong commitment to realising AI-driven gains. However, this raises concerns over the headwind to free cash flow and the time pressure to justify substantial spending and near-term returns on investment. 

Analyst thesis

Our recommendation is based on:

• Diversified portfolio with structural balance: RTX’s ~46% commercial and ~54% defence revenue mix provides earnings resilience across cycles. Core platforms support high switching costs and durable franchise value across the three segments, each generating roughly $28–$30 billion in revenue over the past year.

• Record backlog supports multi-year coverage: RTX ended FY25 with a ~$268 billion backlog (+23% YoY) and 1.56x book-to-bill, reflecting strong order momentum. Exposure to long-cycle defence programs and multi-year OEM and aftermarket contracts underpins revenue visibility and operating leverage.

• Secular defence and aftermarket tailwinds: Rising NATO and European defence commitments support missile and munitions demand, while Pratt & Whitney’s 4,000+ GTF installed base and fleet ageing dynamics drive high-single-digit aftermarket growth and margin expansion.

• Valuation limits near-term upside: Following strong share price performance over the past year, RTX trades at ~29–30x forward earnings, a premium relative to legacy defence contractors. The current multiple suggests the market has largely priced in the company's backlog strength and secular growth tailwinds, leaving limited room for further upside re-rating.