Key insights
- The article suggests Brookfield Corporation is becoming more like Berkshire Hathaway, with a focus on operating companies and strategic investments. Brookfield's distributable earnings have grown significantly, driven by its wealth solutions platform. The company is strategically investing in AI infrastructure, presenting a potential growth catalyst. This could positively influence market sentiment towards infrastructure and AI-related stocks.
Brookfield Corporation (BN +1.18%) has long been one of my favorite companies. The global investment firm has an exceptional record of creating value for investors. Over the last 30 years, Brookfield has delivered an annualized total return of 19%. That has outpaced the S&P 500 and Berkshire Hathaway (BRKA +0.16%)(BRKB +0.14%), which have both delivered roughly 11% annualized returns.
I think Brookfield looks more like Berkshire Hathaway every year. Here's what drives that view and whether now is the time to buy the financial stock.
Brookfield has built a global investment firm around three platforms:
Brookfield's portfolio of operating companies reminds me a lot of Berkshire Hathaway. Like Berkshire, it invests in energy, railroads, and manufacturing and industrial assets. Brookfield has also started investing in insurance companies in recent years (largely focused on annuities). The company uses the earnings these businesses generate (and the insurance float) to invest capital in growing shareholder value. However, while Berkshire primarily invests its capital in new operating businesses and publicly traded stocks (e.g., Coca-Cola and Apple), Brookfield predominantly invests in its private funds and commercial real estate.
Brookfield Corporation has grown its distributable earnings from $2.7 billion in 2021 to $5.3 billion last year, a robust 22% compound annual growth rate over the last five years. The biggest driver has been the addition of its wealth solutions platform, which has been a significant growth catalyst over the last three years.
The company believes the next five years could be even better. A major catalyst is its strategic focus on AI infrastructure investment. The company sees a once-in-a-generation opportunity to invest in building the backbone infrastructure to support AI. One way it's doing that is by investing in AI factories (specialized AI data centers). Brookfield is a cornerstone investor in the Brookfield Artificial Intelligence Infrastructure Fund (managed by Brookfield Asset Management), which aims to invest up to $100 billion in AI infrastructure assets. Additionally, many of Brookfield's operating businesses are investing in supporting the digitalization trend (Brookfield Infrastructure is investing in semiconductors and data centers, while Brookfield Renewable is investing in expanding power generation capacity).
In addition to AI infrastructure, Brookfield sees significant growth potential from individual investors increasing their allocations to alternative investments and from the global real estate recovery. These and other catalysts drive the company's expectation of delivering 25% compound annual earnings-per-share growth over the next five years. Brookfield expects its strategy to grow the company's value to $140 a share by 2030, up from its current estimated value of $68 (and well above the recent $50 share price).
Brookfield expects to deliver robust earnings growth over the next several years as it capitalizes on the AI infrastructure megatrend. With its shares currently trading below its estimated intrinsic value, Brookfield looks like a screaming buy. I fully expect it to continue outperforming Berkshire in the future.