Three Things (2/24)

Caution or opportunity?

A tradition unlike any other: Warren Buffett’s annual letter was released over the weekend. It was revealing given Warren Buffett’s Berkshire Hathaway has amassed a record $334 billion in cash, marking the largest cash reserve in the company’s history. The move signals Buffett’s cautious outlook on current market valuations, as Berkshire has been a net seller of stocks for eight consecutive quarters while waiting for better investment opportunities. The swelling cash begs questions about whether Buffett thinks stocks are overvalued or an economic downturn is coming. Historically, similar cash buildups by Buffett have preceded major market downturns or corrections, suggesting he is preparing to deploy capital during future volatility.

“Be fearful when others are greedy, and greedy when others are fearful” is a classic Buffett quote that he has masterfully navigated across different market cycles over history. Today’s record cash reserve – about 28% of Berkshire’s assets, the highest in many years, fits that contrarian playbook. Although the increased cash position might be read as a caution flag, this could foreshadow a coming buying spree if and when markets stumble. Buffett famously likened cash to “opportunity fuel” – and Berkshire now has a record tank full of it.  

A buyers market

The U.S. housing market is showing signs of shifting in favor of buyers, as rising inventory levels and slower sales give homebuyers more leverage than in recent years. Mortgage rates remain high, suppressing demand, but an increase in unsold listings and longer time-on-market suggest sellers are being forced to offer price reductions and incentives. While not yet a full buyer’s market, the trends indicate that home price appreciation is slowing, and affordability could improve if mortgage rates ease in 2025.

So, are we officially in a buyer’s market? We’re not quite there across the board, but early signs are emerging – especially compared to the ultra-tight market of 2021-2022. Inventory levels are still relatively low by historical standards (even 2019’s supply was constrained), but the trend is what matters: supply is up 17.7% year-over-year in 2024 and home sales have been sluggish. Although we likely won’t see a sudden nationwide price plunge, we could see modest corrections or stagnation in pricing. Buyers are gaining modest leverage, and if mortgage rates inch down in 2025 as some predict, their position will strengthen further (demand would pick up, but so would ability to pay).

Reevaluating expansion

Microsoft is reportedly reevaluating its aggressive data center expansion, with some projects potentially being delayed or redesigned in response to evolving AI technology and financial constraints. The move reflects a shift in the AI arms race, as companies assess whether advances in AI efficiency—such as breakthroughs from China’s DeepSeek—could reduce the need for massive GPU infrastructure spending. While Microsoft remains committed to AI leadership, if the reports are true it could signal that AI infrastructure investment is entering a more cost-conscious phase, focusing on optimization rather than unchecked expansion.

The big question: Are we witnessing the start of an overinvestment hangover in AI infrastructure, or simply a strategic pivot to spend smarter? The early signs lean toward strategic reallocation rather than a full stop. The potential slowdown in investment should be viewed more so as a pivot from quantity to quality of AI investment. Companies, like Microsoft, might shift dollars from just building more data centers to developing better algorithms, custom chips (ASICs), and software optimizations – essentially investing in efficiency to complement capacity.