How Bill Gates Plays the Robber Baron Game With Rail Transport Investments

When most people think of Bill Gates, they picture the founder of Microsoft (Nasdaq: MSFT), the tech empire that reshaped the software industry. Yet that Microsoft stake now represents less than 20% of his total fortune. Through his investment vehicle Cascade Investments and the Bill & Melinda Gates Foundation, the billionaire has built a diversified portfolio exceeding $100 billion. But what’s truly fascinating is how Gates has chosen to preserve and grow his wealth—by adopting an investment playbook that echoes the industrial titans of the 19th century. Like the robber barons of old, Gates has placed substantial bets on railroad infrastructure.

The Railroad Thesis: A Century-Old Asset Class Still in Vogue

It’s ironic that railroads, the foundation of Vanderbilt and Gould’s vast empires more than a century ago, remain one of the most compelling infrastructure investments today. This wasn’t lost on Warren Buffett, whose Berkshire Hathaway (NYSE: BRK-B) demonstrated its conviction by acquiring Burlington Northern Santa Fe for $34 billion in 2009. Gates has taken a similarly bullish stance, making Canadian National Railway Co. (NYSE: CNI) his largest investment outside of Microsoft.

Through combined holdings via Cascade Investments and his foundation, Gates controls 12% of Canadian National Railway—a stake worth over $6 billion that he has systematically accumulated since 2006, when his ownership first exceeded 5%. The returns have vindicated his long-term thesis: CNI has appreciated nearly 200% over this period, vastly outpacing the Dow Jones Industrial Average’s 35% gain.

Why Canadian National Railway?

Canadian National Railway serves as the arterial system of North American commerce, and its strategic importance continues to expand. In the most recent quarter, the company surpassed earnings projections, reporting a 12% year-over-year increase in net income and revenue growth approaching 9%—results that stood out given challenging winter conditions across North America.

The company benefits from several structural tailwinds. First, crude oil logistics remain a persistent challenge. With the Keystone XL pipeline still facing approval delays, Canadian National Railway remains the dominant conduit for transporting tar sands crude to the U.S. Gulf Coast. Even if the pipeline eventually receives green-light approval, construction timelines mean rail will remain critical for years to come, particularly as tar sands production continues climbing.

A second major growth vector comes from the energy sector’s reliance on frac sand for hydraulic fracturing operations. The company’s frac sand transportation revenue surged 23% in the latest quarter, with momentum expected to persist. The Wisconsin facility expansion demonstrates management’s capital allocation toward high-return opportunities. Rail logistics remain the most economical and practical solution for delivering frac sand to drilling operations across North Dakota and Montana.

The third growth driver—and perhaps the most predictable—stems from global agricultural dynamics. Canadian National Railway participates in the agricultural value chain at both ends: it ships fertilizer to farmers and later transports harvested grain to export ports. With Canada expecting a record grain harvest this year, the company projects grain shipments 13% above historical averages, creating significant upside.

Valuation Relative to Competition

When assessed against Canadian Pacific Railway (NYSE: CP), Canadian National Railway presents a more compelling investment opportunity. CNI trades at a forward P/E ratio of 15.9 and an enterprise value-to-EBITDA multiple of 13x, while maintaining an exceptional 36% operating margin. The company’s 1.5% dividend yield represents just 28% of earnings, signaling sustainable and potentially growing payouts.

Compare this to Canadian Pacific Railway, which trades at 17.3x forward earnings with a 16x EV/EBITDA ratio and a lower 31% operating margin. Its dividend yield stands at a mere 0.7%, indicating less shareholder-friendly capital allocation.

The Upside Scenario

If Canadian National Railway were valued in line with the railroad industry average forward P/E multiple of 20.8, the stock would reach approximately $81 per share, representing roughly 30% upside from current levels. This valuation would still be below Canadian Pacific Railway’s multiples, offering room for multiple expansion.

Key Risks to Monitor

The primary vulnerability centers on macroeconomic sensitivity. Canadian National Railway’s fortunes track closely with both U.S. and Canadian economic health. A significant slowdown would pressure shipment volumes across all major product categories—from commodities to energy sector inputs. Economic contraction could rapidly erode the growth thesis that currently supports the investment case.

The robber barons understood that controlling critical infrastructure created durable wealth. Bill Gates appears to be making similar calculations, viewing rail transport not as a declining relic but as an essential artery in the modern global economy.

Disclaimer: The views expressed herein are analytical perspectives only and do not constitute investment advice or recommendations.