Berkshire Hathaway Joins the $1 Trillion Club

• Market capitalization: Surpassed $1 trillion on August 28, 2024
• Stock performance: Class A shares rose to $696,502.02, and Class B shares reached $464.00
• Year-to-date gain: Berkshire Hathaway’s Class A shares have surged by over 28%, and by over 30% for the Class B shares, outperforming the S&P 500’s 18% gain
• Cash reserves: $277 billion as of June 2024, mostly invested in U.S. Treasury bills
• Portfolio changes: Recent reductions in Apple and Bank of America stakes; new acquisitions in sectors like beauty and aerospace

Berkshire Hathaway, the massive conglomerate built by Warren Buffett over nearly six decades, crossed the trillion-dollar market cap mark as the first US firm outside the technology sector to reach this milestone. This development comes as Berkshire’s Class A and B shares surged in intraday trading, driven by strong financial performance and investor confidence.

The company’s market value rose above $1 trillion as their stock gained 0.8% during trading, reflecting growing optimism about the US economy and expectations of an upcoming Federal Reserve rate cut. Despite the broader stock market downturn, Berkshire’s stock has outperformed, driven by robust earnings from its diverse portfolio, including insurance, energy, and retail businesses.  

Behind the achievement

Berkshire Hathaway’s achievement comes amid a backdrop of strong financial performance and strategic moves by their management. The company reported a significant rise in operating profit in the first quarter of 2024, with earnings from their insurance underwriting business growing by 39%. Despite fluctuations caused by accounting rules requiring the inclusion of unrealized gains and losses, Berkshire has maintained their position as a stable and growing conglomerate.

Unlike their peers in the $1 trillion club, which predominantly consists of technology giants like Apple, Microsoft, and Nvidia, Berkshire Hathaway has built their value through a mix of old-economy assets such as railroads, insurance, and consumer goods companies. This diversified portfolio, combined with strategic reductions in holdings of high-value stocks like Apple and increased investments in other sectors, has fueled their growth.

Berkshire Hathaway’s milestone contrasts with the faster growth paths of technology companies like Nvidia and Apple, which reached the $1 trillion mark more quickly due to their dominance in high-growth tech sectors. Despite this, Berkshire’s 28% rise in stock value this year is not far behind the top-performing tech stocks, often referred to as the “Magnificent Seven,” which are up around 35% in 2024.

Insiders and analysts view this achievement as a testament to Berkshire’s enduring strength. Cathy Seifert, an analyst at CFRA Research, highlighted the firm’s “financial strength and franchise value” as key factors behind their success. This strength has been further supported by their significant cash reserves, which provide a cushion against economic volatility.

Impact on investors and consumers

For investors, Berkshire’s entry into the trillion-dollar club signals the potential for continued stable growth. The company’s conservative investment strategy, strong cash reserves, and diversified portfolio make them an attractive option in uncertain economic times. However, the milestone also brings heightened scrutiny and expectations for performance, especially as Buffett, who turns 94 this month, gradually transitions leadership to his successor, Greg Abel.

For consumers, Berkshire’s success reinforces the value of their widely held subsidiaries, such as Geico and Dairy Queen. The conglomerate’s broad range of businesses continues to touch various aspects of daily life, from insurance to retail to energy, ensuring their relevance and impact on the market and the consumer landscape.

Berkshire Hathaway’s $1 trillion milestone is more than just a numeric achievement; it marks a new era for Warren Buffett’s conglomerate and reaffirms the strength of diversified, conservative investments in today’s economy. As Berkshire continues to evolve, this achievement sets a high bar for other companies and provides a foundation for long-term growth and stability in the face of economic uncertainties.