At the time of writing, there are currently five stocks listed on U.S. exchanges that are valued at over one trillion dollars. Berkshire Hathaway is the name of a multinational conglomerate holding company. ( BRK.A -0.21% ) ( BRK.B 0.03% ) One of the companies is not Berkshire Hathaway – at least not currently. The conglomerate led by Warren Buffett has a market capitalization of $926 billion as of August 8th, ranking it as the sixth largest company that is publicly traded.
Berkshire reached its peak in June. was Belonging to the exclusive trillion-dollar club, the company has a market capitalization of approximately $1.06 trillion. However, the stock price has slightly decreased recently, primarily due to concerns about the broader economy.
Considering this, is it possible for Berkshire Hathaway to achieve a market capitalization of over a trillion dollars once more in the coming year? Various factors, whether favorable or unfavorable, could influence its future direction.
Factors that could potentially propel Berkshire’s value to $1 trillion by 2025 or even earlier.
Berkshire Hathaway’s operations consist of three primary components: its operating businesses, stock investments, and cash reserves. Let’s examine each of these individually.
- The collection of stocks owned by Berkshire. The most direct possible trigger is the strong stock performance of Berkshire Hathaway, which currently accounts for $304 billion in market value, representing 33% of the company’s total market capitalization. A significant increase in stock performance could potentially boost Berkshire’s valuation by tens of billions of dollars.
- The $277 billion in cash and short-term investments held by Berkshire Hathaway is seen as a variable factor. While it currently yields approximately $14 billion in interest income per year, there is potential for significant growth if Warren Buffett and his team utilize a substantial portion of it effectively, such as through a lucrative acquisition opportunity, which could lead to a boost in the company’s stock value.
- The company’s operational divisions have shown strong performance, with operating profits increasing by 15% compared to the previous year in the second quarter. If the company can maintain this growth trend until 2025, it could have a significant positive impact on the stock.
Possible obstacles to consider
Alternatively, there are various possible factors that could prevent the stock from reaching or surpassing the trillion-dollar mark, potentially causing it to decrease in value.
One clear example is when there is an economic downturn. Although many of Berkshire’s operating companies are resistant to recessions (as people continue to pay for essential services like electricity and car insurance even during tough economic times), there are some that may be impacted. The stock portfolio of Berkshire could be negatively influenced by a recession.
It is important to highlight the impact of declining interest rates, as they can have both positive and negative effects. Although lower rates may benefit many of Berkshire’s investments, it should be noted that Berkshire holds a substantial amount exceeding $230 million. billion In brief, Berkshire is currently earning a 5% annualized yield from short-term Treasury securities. If interest rates decrease by two percentage points by the end of 2025, as is currently expected, Berkshire could potentially lose billions of dollars in annual interest income.
There are numerous other options available. However, the key issue is that there are many things that could potentially go awry.
The ultimate conclusion
While it is impossible to predict Berkshire’s future actions with certainty, there is a strong probability that the company’s market capitalization could reach one trillion dollars in the coming year. This projection is based on the fact that achieving this milestone would only necessitate an approximately 8% increase in Berkshire’s stock value, a figure considerably lower than the company’s historical average and even below the S&P 500’s long-term average return. Thus, failing to reach this target would be somewhat underwhelming for Berkshire. only achieved a market capitalization of $1 trillion by the conclusion of 2025.
Conversely, various external factors beyond Berkshire’s influence, such as the potential for an economic downturn, could impede its progress. Nevertheless, considering this, I believe there is a higher likelihood than not that Berkshire will return to being a trillion-dollar company by the conclusion of 2025.
