Berkshire Hathaway's (BRK.A +0.71%) (BRK.B +0.72%) stock has outperformed the S&P 500 ever since Warren Buffett's firm took control of the company in 1965. Under Buffett, Berkshire evolved from a traditional textile manufacturer into a diversified conglomerate.
Yet over the past 12 months, Berkshire's stock rose only 9%, while the S&P 500 advanced 16%. It underperformed the market as investors fretted over Buffett's plans to retire and hand the reins over to Greg Abel, the CEO of Berkshire Hathaway Energy. Buffett finally retired on the last day of 2025, marking the end of a six-decade run that propelled Berkshire's market capitalization past $1 trillion.
Will Berkshire's stock firm up and outperform the market this year as Abel assures investors that he can fill Buffett's massive shoes? Or will it stagnate as investors drift away from the stock?
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How does Berkshire Hathaway make money?
Berkshire Hathaway owns a wide range of insurance, railroad, energy, manufacturing, retail, and consumer staples companies. Its most well-known subsidiaries include GEICO, PacifiCorp, BNSF Railway, Duracell, Nebraska Furniture Mart, See's Candies, Dairy Queen, and Fruit of the Loom. Most of those companies are well-insulated from economic downturns.
NYSE: BRK.B
Key Data Points
Berkshire also owns a massive portfolio of stocks, valued at $315 billion, which accounts for approximately 30% of its market capitalization of $1.07 trillion. Its top holdings include Apple, American Express, Bank of America, and Coca-Cola. Buffett personally chose many of those stocks, but Berkshire's top portfolio managers -- Todd Combs and Ted Weschler -- added some of its newer holdings. Combs recently left Berkshire to join JPMorgan as Buffett retired, leaving Weschler as the company's top stock picker.
Berkshire's business has numerous moving parts, but its core strategy is to generate sufficient cash from its insurance subsidiaries to support additional acquisitions and portfolio investments. Therefore, it typically gauges its growth using two key metrics: its float (the cash from its insurance subsidiaries' premiums, which can be deployed in investments before any claims are paid) and its operating earnings (which exclude the volatile gains or losses from its equity portfolio). Those two metrics increased at a steady rate over the past few years.
|
Metric |
2022 |
2023 |
2024 |
|---|---|---|---|
|
Year-End Float |
$164 billion |
$169 billion |
$171 billion |
|
Operating Earnings |
$31 billion |
$37 billion |
$47 billion |
Data source: Berkshire Hathaway.
By the end of the third quarter of 2025, Berkshire's float had risen to $176 billion. In the first nine months of 2025, its operating earnings increased 4% year-over-year to $34.3 billion. Its core insurance, railroad, and energy businesses all generated steady growth over the past year as interest rates declined and the macroeconomic environment stabilized.
However, Berkshire also paused its buybacks, pruned its portfolio by selling some of its top stocks, and increased its cash, cash equivalents, and short-term Treasury holdings to a record $382 billion at the end of the third quarter of 2025. All of those cautious moves suggested that Buffett thought Berkshire's stock and the broader market were getting overvalued. That isn't too surprising, since the S&P 500 still looks historically expensive at 31 times earnings.
What will happen to Berkshire's stock over the next year?
Berkshire Hathaway's stock is challenging to value because most analysts don't provide forecasts for its operating earnings. Instead, Wall Street's estimates mainly focus on its earnings per share (EPS) -- which are notoriously volatile due to its investment-related gains and losses, as well as other one-time benefits and charges across its subsidiaries.
However, Berkshire still looks reasonably valued in relation to its operating earnings. Let's assume it maintains its growth rate from the first nine months of 2025 and grows its operating earnings by 4% to $48.9 billion for the full year, and by an additional 4% to $50.8 billion in 2026.
With its current market cap of $1.07 trillion, Berkshire would trade at 21 times this year's operating earnings. Berkshire's core businesses should also continue to grow if inflation cools off, the Fed continues to cut interest rates, and the macroeconomic environment improves.
Therefore, I expect Berkshire's stock to either hold steady or gradually rise over the next 12 months as investors gain a better understanding of where Greg Abel plans to lead the company. If Abel largely sticks to Buffett's playbook and Weschler doesn't suddenly shake up its stock portfolio, it could become a popular stock for conservative long-term investors again. It could also become a safe-haven stock if the broader market experiences a downturn this year.
