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Moody's Outperforms Buffett's Berkshire Hathaway

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  Published in Stocks and Investing on Monday, February 9th 2026 at 5:44 GMT by The Motley Fool
      Locales: Nebraska, California, UNITED STATES

Monday, February 9th, 2026 - Warren Buffett, the renowned chairman and CEO of Berkshire Hathaway (BRK.B), is celebrated for identifying companies possessing sustainable competitive advantages. However, in recent years, one of his existing holdings, Moody's Corporation (MCO), has consistently exceeded even the impressive returns of Berkshire itself. Over the past year, this trend has intensified, with Moody's stock demonstrating remarkable growth and outperforming both the broader market and its parent company.

This article delves into the factors driving Moody's success, analyzes its financial performance, and assesses its future prospects, considering its current valuation and the evolving landscape of the credit rating industry.

The Enduring Appeal of Credit Risk Assessment

At its core, Moody's operates in the vital field of credit risk assessment. While the industry has faced valid criticisms - particularly following the 2008 financial crisis and subsequent regulatory reforms - the fundamental need for independent evaluation of creditworthiness remains unwavering. This inherent demand provides a foundational level of stability for companies like Moody's, even amidst economic volatility. The role of credit rating agencies has become even more pronounced in the increasingly complex financial world, providing crucial data points for investors, regulators, and corporations alike.

Emerging Markets: A Key Growth Driver

A significant contributor to Moody's recent surge has been its strong presence in rapidly expanding emerging markets. As these economies mature and integrate further into the global financial system, the demand for accurate and reliable credit ratings increases exponentially. Local currency bond markets in regions like Southeast Asia, Latin America, and Africa are experiencing substantial growth, presenting a lucrative opportunity for Moody's to expand its services and generate revenue. This international diversification mitigates risk associated with reliance on mature markets and provides a pipeline for sustained growth.

The Power of Scale and Analytical Investment

Credit rating agencies like Moody's benefit immensely from economies of scale. The initial investment in building a robust analytical framework and data infrastructure can be leveraged across a vast number of credit assessments. Once established, the cost of each additional rating diminishes, leading to significantly improved profit margins. However, maintaining this advantage requires ongoing investment in technology, data analytics, and skilled personnel to stay ahead of evolving risk profiles and maintain the integrity of their ratings. Moody's has been proactive in investing in these areas, particularly in leveraging AI and machine learning to enhance its analytical capabilities.

Financial Performance: A Record of Strength

Moody's has consistently reported impressive financial results. Recent earnings reports show that revenue growth has been fueled by a combination of increased bond issuance volumes and the impact of rising interest rates, allowing the company to command higher fees for its services. Critically, this revenue has translated into robust profitability and strong free cash flow generation, providing the financial flexibility to invest in future growth initiatives and return capital to shareholders.

Berkshire Hathaway's Enduring Confidence

Berkshire Hathaway's long-standing investment in Moody's underscores the agency's inherent value. Buffett's decision to maintain a significant stake - even as Moody's stock price has soared - is a testament to his confidence in the company's long-term prospects. The outperformance of Moody's relative to Berkshire Hathaway is a notable success story within Buffett's portfolio, highlighting the potential for exceptional returns in specialized sectors like credit risk assessment.

Navigating a High Valuation

Currently, Moody's stock trades at a premium valuation, reflecting investor optimism about its future growth. This elevated price raises concerns about potential downside risk. However, the company's strong fundamentals, coupled with its favorable industry position and growth potential in emerging markets, arguably justify the premium. The key question is whether Moody's can continue to deliver earnings growth that supports its high valuation.

Future Outlook: Adapting to a Changing Landscape

The future of the credit rating industry is not without challenges. Increased competition from alternative data providers and fintech companies, as well as ongoing regulatory scrutiny, present potential headwinds. However, Moody's is actively adapting to these changes by diversifying its service offerings - including ESG (Environmental, Social, and Governance) ratings and analytics - and investing in innovative technologies. The ability to anticipate and respond to evolving market dynamics will be crucial for sustaining its long-term success.

The Verdict: A Compelling Long-Term Investment

Moody's has proven to be a remarkable investment for Warren Buffett and Berkshire Hathaway shareholders. While caution is warranted given its current valuation, the company's resilience, growth prospects, economies of scale, and proactive approach to innovation make it a compelling investment for those with a long-term perspective. The ongoing demand for independent credit risk assessment, coupled with Moody's strategic positioning in high-growth emerging markets, suggests that the company is well-positioned to continue delivering strong returns in the years ahead.