Buffett's Warning : Will Investors Flee ?
Surprise, surprise !
Although Mr Buffett has sprung a surprise at recently concluded $Berkshire Hathaway(BRK.B)$ ‘s 2025 Annual Shareholders’ Meeting, officially announcing that he would be stepping down end 2025, marking the end of his 60 years leadership.
Of course, he would still be around as chairman to mentor Abel, but the CEO role transition has been cast in stone.
Apart from this surprise that will come sooner-or-later, I supposed a part of him died a little, the day that his long-time partners-in-crime, Mr Munger passed on, on 28 Nov 2023.
The other surprise of that day was Mr Buffett’s matter-of-fact warning on a possible fading of electric utility companies / stocks.
The Electric Company.
Electric utility companies have long been viewed as a defensive sector by investors because they provide essential services that people continue to use regardless of economic conditions, making their revenues relatively stable even during downturns.
However, Buffett ‘confessed’ that electric utility sector is not as reliable as it used to be, and investors need to adjust their expectations going forward.
Could this be considered a pretty “stern” wakeup call from the Oracle of Omaha ?
Blame wildfires
Buffett said the growing risk of wildfires is the core reason investors need to be cautious on utilities:
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The public utility business is not as good a business as it was a few years ago.
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Evidence of this can be seen in $Hawaiian(HE)$ & Edison International (EIX), amid the current wildfire challenges in California.
In August 2023, shares of Hawaiian Electric plunged as much as -76% as investors feared that the company could be held liable for the deadly Maui fires. Shares have yet to recover any of the losses.
California’s PG& E Corp has also paid out billions of dollars after its equipment was found responsible for starting several wildfires between 2017 & 2021.
As a result, the company filed for bankruptcy, and its stock price crashed as much as -95%.
More recently, shares of California-based EIX plunged as much as -37% over fears that it could be held liable for the Palisades fire in Los Angeles at the beginning of 2025.
Berkshire Hathaway Energy's value decline
Buffett admitted that Berkshire Hathaway is not immune to these risks, highlighting that the conglomerate's Berkshire Energy utility business is declining in value.
He even revealed that "Berkshire Hathaway Energy is worth considerably less money than it was 2 years ago based on societal factors".
All the same, incoming Berkshire Hathaway CEO Greg Abel, who oversees the conglomerate's energy operations, echoed warning and highlighted the persistent risks the industry faces:
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There are no easy solutions.
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Teams working in utilities are trying hard every day to lower the risk, knowing that the danger of wildfires will continue.
Berkshire Hathaway Energy's PacifiCorp utility business (privately held by BRK.B) has faced the wildfire risk head-on after the 2020 Labour Day wildfires in Oregon.
The company has already paid out more than $1 billion in settlements and faces claims in the tens of billions of dollars, not sustainable for a utility business that typically has a low rate of return:
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Incoming CEO, Abel said the company cannot always pay every cost no matter what happened.
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Unfortunately, this has become the situation PacificCorp faces now.
The Aftermath.
Electric utility sector stocks fell when trading resumed on Mon, 5 May 2025.
Of the Top 10 electric utility stocks (by market cap), the 3 that fell most were:
$NextEra(NEE)$
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On Mon, 05 May 2025, NEE fell by -1.48% (-$0.99) to end the day at $66.10.
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NEE stock price has been bouncing up & down for April 2025, based on market reactions to Trump’s misdeed.
$Dominion Resources(D)$
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The 2nd energy stock that fell the most was Dominion Energy Inc, by -1.05%.
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Intraday it fell to as low as $54.04 (-1.75%) before staging a mild recovery.
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Suprisingly, Dominion has been on the rise for the past month by +7.06%. This comes after Trump’s 90 days hold off on 09 Apr 2025.
$Exelon(EXC)$.
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Excelon Corp closed at $46.00 down -1.03% for the session.
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It was the 3rd highest fall for electric utility stock on Monday.
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Like Dominion Energy, Excelon Corp past month also rose by +2.93% and for the same reason.
These declines underscore the market’s immediate negative reaction to Buffett’s remarks and the growing recognition of structural risks facing the electric utility sector in wildfire-prone regions.
With this friendly warning, coupled with Trump’s latest 100% tariffs on foreign movies - will these catalysts cause electric utility stocks to fall further?
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Do you think the latest 100% tariffs by Trump, on foreign made movies makes sense ?
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Do you think you (Electric utility stocks investors), will run for the hills now ?
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