Buffett’s Berkshire Hathaway reaches a market value of $1 trillion, the first U.S. company outside of technology to do so

Warren Buffetts Berkshire Hathaway reached a market cap of $1 trillion on Wednesday, the first non-tech company in the US to reach the coveted milestone.

Shares of the Omaha, Nebraska-based conglomerate are up more than 28% in 2024, far outpacing the S&P 500’s 18% gain. The $1 trillion threshold was crossed just two days before the ‘Oracle of Omaha’ 94 years old.

Shares rose more than 1% to hit a high of $699,699 on Wednesday, putting it past the $1 trillion mark, according to FactSet.

The milestone “is a testament to the company’s financial strength and franchise value,” said Cathy Seifert, Berkshire analyst at CFRA Research. “This is important at a time when Berkshire represents one of the few remaining conglomerates in existence today.”

Unlike the six other companies in the billion-dollar club (Apple, Nvidia, Microsoft, Alphabet, Amazon and Meta), Berkshire is known for its focus on the old economy as the owner of BNSF Railroad,A Geico Insuranceand Dairy Queen. (Although Apple’s significant position has contributed to its recent gains.)

Buffett, chairman and CEO, took control of Berkshire, a struggling textile company, in the 1960s and transformed the company into a sprawling empire spanning insurance, railroads, retail, manufacturing and energy with an unparalleled balance sheet and cash fortune.

“It is a tribute to Mr. Buffet and his management team as ‘old economy’ companies built Berkshire. Yet these companies trade at relatively much lower valuations, compared to technology companies that don’t make up a large part of Berkshire’s business. mix,” said Andrew Kligerman, an analyst at TD Cowen in Berkshire. “Additionally, Berkshire has achieved this through a conglomerate structure, a model that many consider ‘archaic’ as companies have increasingly turned to specialization in recent decades.”

Greg Abel, vice chairman of Berkshire’s non-insurance businesses, has been named Buffett’s successor. At this year’s annual meeting, Buffett told shareholders that Abel, 62, will have the final say on Berkshire’s investment decisions once he is no longer at the helm.

Sales frenzy

Buffett has been in defensive mode lately, dumping a huge amount of stock, including half his stake in Apple, while taking Berkshire’s cash pile to a record $277 billion at the end of June.

While Buffett famously never times the market and advises others not to try to do so either, these recent moves served as a wake-up call for some of his followers on Wall Street, who think he may have seen some of the things he didn’t like the economy and the market. valuation.

Berkshire invests most of its cash in short-term government bonds, and its holdings in such securities – worth $234.6 billion at the end of the second quarter – exceed the amount held by the US Federal Reserve.

So it’s hard to assess why investors are rewarding Berkshire with the $1 trillion crown today, whether it’s a bet on the US economy and Buffett’s vast group of companies that will benefit if it continues or whether they see Berkshire as a money fortress that will. generating stable revenues in the face of an uncertain macro environment.

The conglomerate also started a selling spree of Bank of America shares in mid-July, dumping more than $5 billion worth of bank stocks. Buffett bought BofA preferred stock and warrants in 2011 in the wake of the financial crisis, boosting confidence in the embattled lender struggling with losses from subprime mortgages.

Strong earnings

Following Berkshire’s latest strong second-quarter earnings results, UBS analyst Brian Meredith raised his 2024 and 2025 earnings estimates due to two factors: higher investment income and higher underwriting results at the insurance group, which includes Geico. Insurance stocks have been on a tear this year as the group continues to raise prices due to the pandemic.

Meredith sees Berkshire’s market value rising well above $1 trillion, raising his 12-month price target to $759,000 for the A shares, nearly 9% higher than Wednesday’s level.

“We continue to believe that BRK shares are attractive in an uncertain macro environment,” he wrote in the note earlier this month.

High price tag

Berkshire’s original Class A shares carries one of the highest price tags on Wall Street. Today, each copy sells for 68% more than the average price of a house in the USA

That’s because Buffett never split the stock, arguing that the high stock price attracts and retains more long-term, quality-oriented investors. De Benjamin GrahamA protégé has said that many Berkshire shareholders use their shares as savings accounts.

Yet in 1996, Berkshire issued Class B shares at a price equal to one-thirtieth of a Class A share to cater to smaller investors who wanted a small piece of Buffett’s performance.