With US stocks trading at record-high valuations, famous value investor Warren Buffett appears to be growing quite nervous in today’s stock market climate. At least, that’s what the latest trades of his investment firm Berkshire Hathaway suggest. For context, billionaire Buffett and his team have been a net seller of US stocks for three years in a row.
However, while most investors are fearful of a massive AI bubble, at the 2025 annual shareholder meeting for Berkshire, Buffett revealed what he’s most concerned about. And it isn’t AI.
A ticking time bomb?
A problem that’s been brewing for many countries in recent years is fiscal deficits. In the 2024/25 tax year, the UK ended the year with an estimated £148.3bn deficit. But in America, the situation is even more dire with a $1.8trn deficit.
This isn’t a new problem. In fact, the US government has run a fiscal deficit every year since 2002. And it’s only got bigger and bigger. For many years, this gap was filled by simply borrowing money. And with interest rates sitting near 0% for so long, this tactic proved quite effective.
But today, that’s no longer the case. And subsequently, this reliance on debt has started to backfire, resulting in a significant chunk of national budgets allocated solely to keeping up with interest payments.
With borrowing increasingly becoming less viable, the pressure is on to either cut public spending or raise taxes – neither of which is politically popular. And it’s a tricky situation that requires unpopular policies to fix. Yet, so far, it seems the US government continues to kick the can down the road.
That’s why at Berkshire Hathaway’s shareholder meet, Buffett highlighted that one of his biggest concerns right now: “Fiscal policy is what scares me in the United States.“
What now?
In light of Buffett’s warning, it’s easier to understand why he’s been trimming a lot of his US positions. However, it’s also important to highlight a few instances where he’s actually been buying US stocks. For example, Berkshire’s recently topped up its position in Domino’s Pizza (NASDAQ:DPZ).
Much like Domino’s here in the UK, the American enterprise has struggled in recent years with demand seemingly soft as consumers cut back on takeouts. However, while we don’t know Buffett’s precise investment thesis, it’s not difficult to see why he’s taken a liking to this business.
Despite the cyclical headwind, Domino’s continues to enjoy a serious technological edge over its competitors. Its hyper-optimised order and delivery system not only maximises operational efficiency, but it’s also worked wonders in improving the customer experience, resulting in a market-leading brand that’s vastly outperformed rivals such as Papa John’s and Pizza Hut.
The company obviously still has to navigate through an uncertain economic climate. And that’s already materialising in slowing like-for-like sales. Meanwhile, food inflation’s driving up input costs, resulting in a double-whammy that’s pressuring profit margins.
Nevertheless, if the world’s greatest investor has taken an interest, then it seems only prudent to take a closer look. And it goes to show that even with macro concerns, Buffett still believes there are bargain stocks to buy even in today’s climate.
That’s why I’ve also been loading up on other undervalued US stocks for my own portfolio.
