Warren Buffett's Berkshire Hathaway closes in on record high as its Apple stake and brighter outlook cheer investors
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- Berkshire Hathaway stock closed at a 16-month high, and within touching distance of a new record.
- Warren Buffett's company boasts a $175 billion stake in Apple, and benefits from a better economy.
- Buffett has overseen a roughly 4,300,000% gain in Berkshire stock during his career.
Berkshire Hathaway stock closed at a 16-month high on Thursday, reflecting the company's massive stake in Apple and a rosier outlook for the US economy.
Class B shares of Warren Buffett's conglomerate have jumped 15% this year. They ended the day at $354, not far off their record high of $360 in March last year. Buffett has now overseen a remarkable 4,300,000% gain in the value of Berkshire's original Class A shares since he took over as CEO in 1965.
Berkshire's Apple shares remain a key driver of the stock. The famed investor's company owns 5.8% of the iPhone maker, a stake worth $175 billion as of Thursday's close. In other words, a single position in Buffett's portfolio accounts for 22% of Berkshire's entire market value.
Apple's stock price has surged 47% this year, partly because investors believe it will be a major beneficiary of artificial intelligence. AI bulls predict the technology will boost productivity and bolster corporate profits. They expect Apple and other Big Tech companies like Microsoft, Alphabet, and Tesla to be key players in the space.
Berkshire shares have also been buoyed by an improved economic backdrop. Inflation spiked last summer to 9.1% — a 40-year high — but dropped to 3% in June. The Federal Reserve rushed to curb the price growth by hiking interest rates from virtually zero last spring to north of 5% today. Now that prices aren't rising much faster than its 2% target, investors are hoping the US central bank will ease off and avoid sparking a recession.
It's worth noting that Berkshire is basically a microcosm of the US economy, with businesses spanning insurance, energy, railroads, manufacturing, industrials, retail, and other sectors. The conglomerate earns about 80% of its operating profits from consumer-sensitive businesses, one analyst has estimated. As a result, it's vulnerable to rising prices, steeper borrowing costs, and recession fears causing a slump in consumer spending.
When Insider spoke to the CEOs of Berkshire-owned See's Candies, Dairy Queen, Borsheims, Brooks Running, and Helzberg Diamonds in May, they all emphasized those pressures were weighing on American households.
However, consumer spending has proven resilient so far, and worries about inflation, rates, and a a near-term recession appear to be fading. The upshot could be a jump in demand across many of Berkshire's subsidiaries, which likely explains why investors have piled into its stock in recent weeks.
Buffett will offer fresh insights into how his businesses are faring on Saturday, when Berkshire publishes its second-quarter earnings report. He'll provide an update on his Apple stake and the rest of his stock portfolio in the middle of this month.