Warren Buffett tours the grounds of Berkshire Hathaway's annual shareholders meeting in Omaha, Nebraska.
David A. Grogon | CNBC
Warren Buffett Berkshire Hathaway Amazon's market value hit $1 trillion on Wednesday, the first non-tech company in the United States to achieve the prestigious milestone.
The Omaha, Nebraska-based conglomerate’s shares are up more than 28% in 2024, far outpacing the S&P 500’s 18% gain. The $1 trillion mark was crossed just two days before the “Oracle of Omaha” turns 94.
The company's shares rose 0.8% to $696,502.02 on Wednesday, allowing it to surpass the $1 trillion mark, according to FactSet.
“This achievement is a testament to the financial strength of the company and the value of its franchise,” said Kathy Sievert, an analyst at Berkshire Hathaway Research. “This is important at a time when Berkshire is one of the few remaining conglomerates in existence today.”
Unlike the other six trillion-dollar companies (Apple, Nvidia, Microsoft, Alphabet, Amazon and Meta), Berkshire is known for its focus on the old economy as owner of BNSF Railroad, Geico Insurance and Dairy Queen. (Though its large stake in Apple has helped drive recent gains.)
Buffett, chairman and chief executive, took control of Berkshire, a struggling textile company, in the 1960s and turned the company into a sprawling empire spanning insurance, railroads, retail, manufacturing and energy with an unparalleled balance sheet and cash fortress.
“It’s a tribute to Mr. Buffett and his management team that Berkshire was built on ‘old economy’ businesses. Yet these businesses trade at relatively lower valuations than technology companies, which are not a large part of Berkshire’s business mix,” said Andrew Kligerman, a Berkshire analyst at TD Cowen. “Moreover, Berkshire achieved this through a conglomerate structure, a model that many see as ‘outdated’, as businesses have increasingly become specialized over the decades.”
Berkshire Hathaway
Greg Abel, Berkshire’s vice president of non-insurance operations, has been named Buffett’s successor. At this year’s annual meeting, Buffett told shareholders that Abel, 62, will have final say on Berkshire’s investment decisions when he’s no longer at the helm.
Fast sale
Buffett has been on the defensive lately, shedding a massive amount of stock, including half his stake in Apple, while boosting Berkshire's cash pile to a record $277 billion at the end of June.
While Buffett is known for never timing the market and advises others not to try to do so either, these recent moves have served as a wake-up call to some of his followers on Wall Street, who believe he saw some things he didn't like about the economy and market valuation.
Berkshire Hathaway invests the majority of its cash in short-term Treasuries, and its holdings of these securities — worth $234.6 billion at the end of the second quarter — exceed the amount held by the U.S. Federal Reserve.
It's hard to judge why investors are rewarding Berkshire with a trillion-dollar crown today, whether it's a bet on the U.S. economy and Buffett's sprawling conglomerate that stands to benefit if the company continues to operate, or whether they view Berkshire as a cash fortress capable of generating steady income in the face of an uncertain macroeconomic environment.
The group also went on a selling spree. Bank of America In mid-July, Buffett dumped more than $5 billion of the bank’s stock. Buffett had bought Bank of America’s preferred stock and warrants in 2011 in the wake of the financial crisis, boosting confidence in the troubled bank, which was suffering from losses linked to subprime mortgages.
Strong earnings
Following Berkshire’s latest strong second-quarter earnings, UBS analyst Brian Meredith raised his earnings estimates for 2024 and 2025 on two factors: higher investment income and stronger underwriting results at the insurance group, including Geico. Insurance stocks have been on a rise this year as the group continues to raise prices after the pandemic.
Meredith expects Berkshire's market value to rise well above $1 trillion, raising his 12-month price target to $759,000 for Class A shares, about 9% higher than Wednesday's level.
“We continue to believe that BRK stock is an attractive investment in an uncertain macroeconomic environment,” he wrote in a note earlier this month.
High price
Berkshire's original Class A shares carry some of the highest prices on Wall Street. Today, each one sells for 68% more than the average U.S. home price.
Berkshire Hathaway A shares, long term
The reason is that Buffett has never split stocks, arguing that a higher stock price attracts and retains more long-term, quality-oriented investors. Benjamin Graham’s disciple has said that many Berkshire shareholders use their stocks as savings accounts.
However, Berkshire issued Class B shares in 1996 at a price equal to one-thirtieth of Class A shares to cater to smaller investors who wanted a small piece of Buffett's performance.
