Warren Buffett's Precision Castparts Bet Nears $100 Billion Valuation
Warren Buffett's 2016 acquisition of Precision Castparts for $37.2 billion is now valued at approximately $100 billion amid surging demand for aerospace and AI data center power components.
In 1996, Warren Buffett wrote to Berkshire Hathaway shareholders: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes." Thirty years later, it turns out to be worth listening to the Oracle of Omaha.
The 2016 Acquisition and Early Struggles
In 2016, Berkshire Hathaway acquired Precision Castparts for approximately $37.2 billion. Precision is a manufacturer of complex metal components, aerospace equipment, and power systems.
By 2022, Berkshire was forced to take an $11 billion writedown on the acquisition. CNBC reported that Buffett admitted in his annual shareholder letter that he had paid "too much" for the company. While it was an "outstanding company—the best in its class," he was "simply too optimistic" about its profit potential, a "miscalculation" exposed by the massive downturn in the aerospace industry during the COVID-19 pandemic.
A Surge in Value for Precision Castparts
Now, a decade after the initial deal, Buffett's investment is finally paying off significantly.
According to a Reuters report, there is currently a shortage of the products Precision manufactures, which are essential for engine turbine blades. They are also used in natural gas turbines, which are in high demand for powering artificial intelligence data centers.
GE Aerospace announced it will pay $11.75 billion to acquire Consolidated Precision Products, one of the few competitors to Precision Castparts. Barron's magazine called the price "expensive," amounting to 26 times the forecasted 2027 EBITDA.
Using the same multiple, Barron's estimates that Precision Castparts is now worth around $100 billion. This figure is significantly higher than the potential valuation of $60 billion to $75 billion cited in a report last month, which noted that the division had "arguably become one of the most valuable units" at Berkshire.
This valuation is nearly three times the original $2016 acquisition price.
