Berkshire Hathaway's Nucor Stake and Immediate Market Response

Nucor Corporation (NUE) experienced significant downward pressure on its stock price on September 18, 2025, registering a decline of 6.09%, or $8.70 per share. This movement followed the steel manufacturer's release of a third-quarter earnings guidance that disappointed market expectations. Concurrently, it was revealed that Warren Buffett's Berkshire Hathaway initiated a position in Nucor during the first half of 2025, acquiring a nearly 3% ownership stake. This investment, valued at approximately $856.8 million for 6.61 million shares, was disclosed in Berkshire's Q2 2025 13F filing and positions Nucor as a strategic holding for the conglomerate.

Nucor's updated guidance projected earnings per diluted share for Q3 2025 to fall between $2.05 and $2.15, a notable miss compared to the consensus analyst estimate of $2.63. This announcement triggered investor concerns, overshadowing the earlier news of Berkshire Hathaway's endorsement. The steel producer attributed the anticipated earnings decline to operational challenges across its segments, including reduced volumes and margin compression in its steel mills, higher average costs per ton in steel products despite stable pricing, and lower profitability in raw materials due to scrap processing issues.

Contrasting Signals: Endorsement vs. Earnings Outlook

Berkshire Hathaway's investment in Nucor presents a seemingly contradictory signal against the backdrop of the company's recent stock performance. While the steel industry is often characterized by its cyclical and capital-intensive nature, Berkshire's move is seen by some as a strong qualitative endorsement of Nucor's standing within the sector. This perspective is reinforced by Berkshire's concurrent investments in major homebuilders D.R. Horton and Lennar, suggesting a strategic bet on a resurgence within the U.S. housing sector and, by extension, increased demand for steel products.

Despite the positive long-term implications of Buffett's backing, the immediate market reaction was dominated by the weaker-than-expected Q3 earnings preview. In the second quarter of 2025, Nucor reported a profit of $2.60 per share and revenue of $8.46 billion, representing a 4.7% year-over-year increase. However, the company cited increased raw material costs as a significant factor impacting Q2, a trend that appears to have continued into Q3. The steel mill backlog at the end of Q2 was up by almost 30% year-on-year, indicating robust underlying demand, yet this has not translated into immediate earnings stability.

Nucor's Strategic Position and Valuation Dynamics

Nucor holds a distinguished position as a "Dividend King," with an expected increase in 2025 marking its 53rd consecutive annual dividend raise. This consistent return of capital to shareholders highlights the company's financial resilience and commitment to investor value. Nucor has also been active in share repurchases, buying back approximately 0.7 million shares in Q3 at an average price of $140.46 per share, and 4.8 million shares year-to-date at an average price of $126.26.

The company's valuation metrics reflect investor confidence in its long-term potential, trading at a P/E ratio of 26.2x and a P/EBITDA ratio of 15.6x as of September 2025. These figures significantly exceed the steel sector averages of 4.5x and 7.0x, respectively. This premium valuation is attributed to Nucor's structural advantages, including a vertically integrated Electric Arc Furnace (EAF) technology that utilizes 75% recycled scrap, reducing exposure to raw material price swings, and its dominant 10% share of the U.S. steel market. Q2 2025 EBITDA reached $1.3 billion, with an EBITDA margin of 15.6%, outperforming the industry average of 9.54%.

Broader Economic Context and Analyst Perspectives

The broader context of Berkshire Hathaway's investment strategy points to a belief in the resilience of the U.S. economy, particularly the housing sector. The U.S. faces an estimated housing shortage of 5.5 to 6.8 million homes, driving demand for new construction. While the housing market is projected to soften rather than collapse in 2025, elevated mortgage rates (expected to remain in the mid-6% range) and increasing inventory could lead to slower price growth.

Analysts have offered mixed reactions to Nucor's recent developments. Wells Fargo responded to the weak guidance by lowering its price target on Nucor to $140.00 from $146.00, while maintaining an 'Equal Weight' rating. In contrast, Goldman Sachs had previously revised its price target for Nucor higher to $182, reflecting earlier optimism about the company's operational resilience. The divergence underscores the complexities of assessing Nucor's near-term earnings against its long-term strategic advantages and endorsement from a major investor.

Outlook: Free Cash Flow and Market Dynamics

Looking ahead, Nucor's financial trajectory is expected to see a significant shift. Chief Financial Officer Steve Laxton indicated that the company anticipates a "dramatic change in free cash flow profile in the back half of the year" compared to the first half. This optimism stems from a projected slowdown in capital expenditures, following substantial investments of over $15 billion since 2017 to expand facilities and make acquisitions. Many of these investments are now generating revenue and cash flow, positioning Nucor for increased free cash flow generation.

Investors will be closely watching for signs that this anticipated surge in free cash flow materializes, potentially offsetting the recent earnings concerns. The performance of the U.S. housing market, global steel demand, and the impact of domestic policies such as Section 232 tariffs will remain crucial factors influencing Nucor's stock. While short-term volatility persists due to earnings fluctuations, the company's strong balance sheet, "Dividend King" status, and strategic positioning reinforced by Berkshire Hathaway's investment, suggest a compelling long-term outlook for value-oriented investors.