Why You Should Invest In North American Railroad Stocks

In the Age of AI, one very Old Economy industry is still prospering: railroad.

Yep, that’s right, railway companies. This sector is as ‘boring’ as you can get. Ask around, who invests in railroad stocks these days? Most would instantly shake their heads.

Every trader is hyped up about 24-hour crypto prices, AI/memory stocks, or Musk’s recently listed SpaceX (SPCX). Railroad? Nah. Those are ‘grandpa’ stocks that only investors like Warren Buffett would buy. 

It is not hard to see why. The last time the railroad was a growth industry in America was about 160 years ago during the first Gilded Age (1880s). As many attest, the future lies definitely in OpenAI, Anthropic, compute-related companies and other emerging AI stocks.

But, as those lofty memory AI stocks deflate across the board (see, eg last week’s Analysis), this Old Economy industry is powering ahead.

Take a quick look at Union Pacific Corporation (UNP).

The $170 billion rail firm remains one of the oldest companies (founded 1862) that is still trading on the Big Board.

Its share price is looking very healthy. Prices recently punched through the 2022 highs (a ‘breakout’) and closed at new all-time highs (see below).

Despite the lack of excitement and coverage around railroad stocks, why are railroad stocks powering to historic highs?

Investing, broadly speaking, is as much about sentiment as it is about profits. Unlike many AI startups, railroad companies are highly profitable. The US railway franchise is like one of the expensive Monopoly properties a player owns. Anyone who ‘trespasses’ the area has to pay significant rent.

In the US, the length of railroad lines is fairly fixed year-to-year. Different rail companies specialised in different areas of operations (see below). This means two things: One, it is a fairly monopolistic business. Two, a profitable rail company will likely stay in business for a long time due to recurring revenue.

Corporate longevity is one factor that many investors overlook when analysing equities. Will the company still in business ten years from now? For many tech companies, the answer is probably a quick ‘no’.

For railway companies, the answer is affirmative, since railway is a quasi-utility transportation that is too important to fail. Many successful operators stand ready to acquire smaller, struggling rail companies.

When Warren Buffett through Berkshire Hathaway bought the US second largest railroad company – BNSF – back in early 2010 for a princely sum of $44 billion (including $10bn debt), he wrote:

…owning this railroad will increase Berkshire’s “normal” earning power by nearly 40% pre-tax and by well over 30% after-tax…..Both of us are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs….Over time, the movement of goods in the United States will increase.

Indeed, the railway is one of the most efficient transportation methods for goods. It benefits from natural economic and population growth. This thesis still holds true in the Age of LLMs. The infrastructure spending that AI companies are throwing around ($750 billion annually to 2030) will benefit rail stocks since it requires the rail network to transport critical materials cheaply and efficiently.

And railway companies are generating billions in profits.

When Berkshire acquired BNSF in 2020, BNSF’s net earnings was $2.46 billion. In 2025, this grew to an amazing $7.28 billion. The investment here has long since paid back Berkshire’s original capital. The rest is pure profits.

For Union Pacific, the company holds a 32,889 route-mile rail network across 23 states. Last year the firm generated net income of $7.1 billion out of a revenue of $24.5 billion.

More impressive was the fact that it was able to increase dividends and reduce shares outstanding for 19 years in a row. (see below) This is how profitable the industry is. Yes, you may not make 10x in a year or two like those new AI companies, but the consistency of UNP/BNSF profits are undeniably large when you cast your horizon to 15 years or more.

Given this thick financial cushion, UNP sought in 2025 to buy Norfolk Southern for $85 billion to create a $250 billion railway juggernaut.

Let’s us cast our eyers on a few other railroad stocks.

CSX Corporation (CSX) is a smaller railroad company with a market cap of $91 billion. It runs a 20,000 route-mile rail network running primarily on the east coast. Last year, CSX reported net profits of $2.9 billion on revenue of $14 billion. Not a bad margin.

Like UNP, its share price is performing well. CSX rallied to new highs earlier this year and gained more than 20 percent since that crossover above $40.

For the Toronto-listed Canadian Railway (TSX:CNR), the stock has rebounded strongly in recent weeks in a bid to break out to new price highs.

The C$108 billion rail company has a 18,900 route miles across Canada and US. It transports critical commodities like aluminium, coal, forest products, grains, fertilisers and other industrial goods from origins to ports.

In 2025, CNR’s net income totalled $4.3 billion out of revenue of $17.3 billion – a margin of 24.9 percent.

Lastly, I highlight the TSX-listed Canadian Pacific Kansas City (TSX: CP). The C$113 billion company was formed from a merger between Canadian Pacific (CP) and Kansas City Southern (KSC) back in 2023.

As a result of this merger, CPKC owns a 20,000 route mile network across Canada, US and Mexico (see below). In 2025, the rail company earned revenue of $15.1 billion and net income of $1.8 billion.

Its stock price also broke out recently above the $120 barrier for the first time, potentially ending the 4-year choppy consolidation between $100-$120.

CPKC’s unique route across three countries:

Summary

Unlike those newfangled LLMs and AIs, railroad is a very old-fashioned industry.

The entire network is only operated by a few companies (UNP, BNSF, CSX etc). Moreover, it is a heavily regulated and unionised sector. Earnings growth will never be high year-to-year (think single digit) since there are only so many carriages and train tracks around.

But, to make up for these disadvantages, the sector produces consistent earnings every year. While capital expenditure is required to upgrade the fleet of rail stock, they can be capitalised over many years. Return on equity is reasonable.

Moreover, these rail companies will be in operation for years. A sudden bankruptcy is rare. At times, shareholders may even benefit from lateral takeovers and consolidation, although this will take a long time to complete due to the monopolistic nature of the business.

Right now, stock prices of these North American rail stocks are heading definitely north. Whether this is due to opportunistic rotation or new long-term bull run I can’t be sure. But I do know that rail stocks are doing much better than many tech companies such as SpaceX (SPCX), which is down nearly a third from its recent peak (see below).

Therefore, as those memory-AI stocks continue to exhibit choppy trading, US/Canadian railroad stocks may provide orthogonal advantages to one’s portfolio.