Prediction: Warren Buffett's Berkshire Hathaway Stock Will Outperform the S&P 500 in 2025

The S&P 500 Index (SNPINDEX: ^GSPC) enjoyed a fantastic year in 2024, gaining roughly 24% (as of Dec. 30). Warren Buffett's Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) performed similarly, depending on which share class you look at.

Over the last two years, the broader market, buoyed by high-flying tech stocks, is up about 53%. Berkshire Hathaway has trailed the market, but still performed very well. I believe this trend will reverse in 2025, and Berkshire Hathaway will outperform the S&P 500. Here's why.

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Berkshire Hathaway is better positioned

Berkshire's -- and the broader market's -- gains have been propelled by similar dynamics, at least if you compare Berkshire's roughly $300 billion equities portfolio to the makeup of the S&P 500. The Magnificent Seven stocks and Broadcom, which some now call the Fateful Eight, consume more than one-third of the broader benchmark index. Magnificent Seven member and consumer tech behemoth Apple made up roughly 30% to 40% of Berkshire's equities portfolio until about mid-way through 2024.

Berkshire began selling Apple and has now trimmed its stake by 67%. Now, Apple only makes up about a quarter of Berkshire's portfolio, and I could see Berkshire continuing to pare this position, as Buffett and his team are not known to take half positions. Regardless, this puts Berkshire's portfolio in a more balanced position. Bank of America and American Express account for another quarter of Berkshire's equities portfolio. Stocks in other sectors like oil, consumer goods, and financials other than banks make up another quarter.

Of course, the Fateful Eight stocks could keep rising. But in my opinion, these stocks will be more vulnerable to pullbacks on earnings hiccups or issues with the broader market and inflation, due to their elevated valuations. Buffett and Berkshire haven't purchased many stocks over the last two years. However, they hold a nice slate of value names with strong dividends, including Kraft Heinz, Sirius XM, and Citigroup.

Berkshire also has a massive hoard of cash exceeding $300 billion, which provides a nice cushion, and the company has only repurchased a few billion dollars' worth of its own stock this year. The Oracle of Omaha has managed to keep pace with the S&P 500's impressive year without making many big moves.

Plus, Berkshire is well-positioned to hedge inflation, considering its many energy assets and stocks. Berkshire Energy is one of the largest oil producers in oil-rich Texas. Berkshire also now owns more than 6% of outstanding shares in Chevron and more than 28% of Occidental Petroleum, a company some speculate Berkshire may eventually outright acquire. The outlook for oil prices is fairly bearish right now. However, further geopolitical tensions, or fluctuations in interest rates or the U.S. dollar, could affect oil prices. Berkshire offers safety and potential rewards for shareholders if oil prices move higher.

The market is vulnerable

After two great years, the S&P 500 may continue to move higher in 2025. Bull markets don't always end when you expect. That said, the market looks pricey and overly concentrated in the Fateful Eight stocks. The market could broaden, although it could be more challenging if Treasury yields remain elevated.

Berkshire has significantly lowered its exposure to Apple, and it holds many stocks that will benefit if the bull market continues. Berkshire also owns many value names and other stocks that may be more resilient during a market pullback and that can better hedge inflation. Berkshire's massive cash position offers flexibility, and Berkshire's management team has navigated many recessions and bear markets and has a knack for getting out at the right time. Given these factors, I believe Berkshire will outperform the broader market in 2025.

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Citigroup is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has positions in Bank of America and Citigroup. The Motley Fool has positions in and recommends Apple, Bank of America, Berkshire Hathaway, and Chevron. The Motley Fool recommends Broadcom, Kraft Heinz, and Occidental Petroleum. The Motley Fool has a disclosure policy.