(MENAFN- ValueWalk) >Giverny Capital's commentary for the third quarter ended September 30, 2025.

Table of Contents

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• A Difficult Quarter
• Constellation Software
• Medpace
• Carmax
• Five Below
• Lululemon
• Dollarama
• Meta and Alphabet
• Booking Holdings
• Berkshire Hathaway
• In Conclusion

A Difficult Quarter

It was a challenging quarter for our portfolio. First, the stock price of our largest holding, Constellation Software, declined significantly (more on this later). Secondly, Carmax had a disappointing quarter. In addition, Fiserv's results fell short of expectations. We have come to believe that the new management at Fiserv is not up to our standards, and we have decided to sell. The performance of our stocks in aggregate remains positive for the year but well below stock market benchmarks.

Three segments of financial markets have been doing well for some time: everything related to Artificial Intelligence (AI), gold and cryptocurrencies. Gold and crypto will never be part of Giverny Capital's model portfolio for the simple reason that they are assets (“objects of speculation” would probably be a more appropriate term) that are impossible to value. The reason for this is simple: they do not generate any wealth (cash fl ow) and therefore their valuation is simply linked to the prices that others are willing to pay for them. As Warren Buffett advocates, we prefer to acquire assets that create wealth by inherently being productive assets.

While gold has its moment of popularity every 10 years or so, the yellow metal has generated much lower return than equities over the long term. As for cryptocurrencies, we agree with Warren Buffett that there is nothing that seems rational that can justify their valuation. We believe that it will end very badly for speculators one day, ultimately swallowing up parts of their savings. We got a taste of this unravelling in 2022 but it was, in our opinion, only a preamble for a potential carnage to come.

Of course, all companies that are involved in AI are in a different situation. There are excellent companies that operate in this segment such as NVIDIA, Oracle and Microsoft. What chills our excitement for these companies, however, is their high valuations on the stock market relative to their earning power.

One additional aspect to consider with AI companies is that not only are their valuations high, but the future profits linked to this industry seem extremely difficult to estimate. The investments involved in building data centers are enormous (in tens, if not hundreds of billions of dollars) and their future profitability will depend on several unpredictable factors (for example, how the phenomenal amount of electricity needed to power them will be generated).

Constellation Software

Constellation Software's stock has fallen significantly in recent months for two reasons. The first is related to the popularity of AI (not to say euphoria). One fear that has spread to Wall Street is that AI will automate the creation of computer programs and render software companies obsolete as a result. We believe that such a generality is simplistic and greatly exaggerated and has, for the moment, little basis in the reality of the corporate world.

We have spoken with several people in the industry and believe that the chances are low that such a thing will occur in the short to medium term, especially in complex and niche software products such as Constellation's. I would add that it is difficult to predict the real consequences of AI proliferation, even from experts in the field.

The second reason for the stock's decline is the resignation of the company's CEO, Mark Leonard, for health reasons. Mark had to focus on his medical condition and required urgent treatment which made him unable to manage the company. We obviously wish him to recover quickly.

Mark Miller, a seasoned executive on Mark's team, has stepped in as his replacement. He has been Mr. Leonard's right-hand man for 30 years and is, in our opinion, the best person to step into the CEO role. On the fundamental level, Constellation's profits are up approximately 20% so far in 2025.

Medpace

Medpace, our Cincinnati-based contract research organization (CRO) company, has once again reported strong results for its third quarter. Revenue rose 24%, new business orders grew 48% and earnings per share (EPS) rose 28%.

Carmax

The situation at Carmax is less favorable. After a few quarters of improvement, the results of the last quarter were disappointing, with sales falling 6% and profits slumping 25%. Furthermore, the company announced a few weeks later that the results for the current quarter would likely be even more challenging. The board of directors then decided to replace the CEO.

Our retailer of used cars is dealing with two headwinds. The first seems temporary to us, which is the weakness of everything related to the US consumer. It is a cyclical problem by nature and one that will eventually be resolved.

Carmax, however, also suffers from greater competition in its industry. First, Carvana does very well in the segment of customers who prefer to shop for a used car entirely online. Customers with low credit scores are also favored (and funded) by Carvana. Carmax is more cautious and instead favors customers with better credit scores and the latter are more reluctant to purchase a car (even a used one) these days. In our view, Carvana's business model carries a higher inherent risk than Carmax's. Nevertheless, Carvana continues to gain market share in the industry.

In addition, companies focused on new car sales, such as AutoNation, historically had little presence in the used car segment but are now more aggressive in wanting to engage in Carmax's market. For instance, AutoNation accepts lower gross profit margins than Carmax to gain market share.

For all these reasons, Carmax's competitive advantages now appear less robust than they were a few years ago.

We have been very patient with Carmax, but we have concluded that it is time to invest our capital elsewhere.

Five Below

Our Philadelphia-based retailer, Five Below, continues to improve its results. In its second quarter, comparable sales increased by 12% and total sales grew by 24%. EPS climbed 50%. Despite the potential effects of tariffs on its profit margins, the company has increased its EPS guidance for 2025. Things seem to be settling back into place for Five Below.

Lululemon

The situation is more difficult for Lululemon. Higher tariffs on Vietnam's imports will affect its gross margin level and the company cut its EPS forecast for 2025.

Sales in China are doing well (they increased by 24% in the last quarter) but they are stagnating in the United States. It is difficult to establish whether Lululemon is losing market share (its close competitors are private companies) or whether it is simply suffering from the weakness of American consumers.

The stock has fallen sharply this year. The company has a strong balance sheet (no debt and over $1 billion in cash) and its stock appears to us to be undervalued at the current price; and the company is buying back shares.

Dollarama

Rounding out our portfolio's retail holdings, Dollarama had an excellent second quarter with organic sales growing 5% in Canada and total sales rising 10%. EPS increased by nearly 14%. The company's profit from its international operations increased from $22.7 million to $38.3 million-an increase of 69%. This corresponds to 8% of Dollarama's total operating profits. We believe that these activities are destined to become increasingly more important for the Montreal-based company.

Meta and Alphabet

Meta Platforms (Facebook) announced excellent results. The number of daily active users averaged 3.54 billion for September 2025, an 8% increase year-over-year. The number of ads increased by 14%, and revenue climbed 26%. Adjusted EPS grew by 20%.

Alphabet (Google) also had excellent results: Revenue climbed 16%, and operating income increased by 9%. The number of monthly active users of the AI search app, Gemini, reached 650 million, three times the number in the previous quarter.

Booking Holdings

Booking had another solid quarter. Revenue grew 13% compared to the third quarter of 2024, or 8% on a constant currency basis. Adjusted EPS grew 19%. Alternative accommodation room nights at Booking (an activity that competes with Airbnb) increased by about 10%. During the year so far, the company has bought back more than 4 billion dollars of its shares

Berkshire Hathaway

Berkshire had a very good third quarter. We estimate that operating earnings increased by 17.5% thanks to a large increase in the insuranceunderwriting activities. The cash level continues to increase and has reached 377 billion dollars.

In Conclusion

I've already been through a few difficult periods in the three decades I've been managing our model portfolio. Since I'm in the same boat as our partners, I want to emphasize that when you suffer, I suffer too.

And I certainly like to generate good returns (and have gotten a taste for it over the years).

However, risk management remains at the center of my concern just as it was on the first day I started managing other people's money. Your capital (and mine) is valuable and Giverny Capital takes its vital stewardship role very seriously.

The age of AI is certainly a transformation that we do not underestimate. Quite the contrary, we are following this revolution very closely. In addition, we use AI tools on a daily basis which has greatly accelerated various analytical work and improved our processes for dissecting company fundamentals. This is not to say, however, that blindly investing in everything related to this revolution is wise and rational.

I intend to return to this topic in depth in my next annual letter and, among other things, looking to what we can learn from several examples from the history of capitalism.

I wish a good quarter to all our partners.

François Rochon and the Giverny Capital team

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