Is This the Reason Warren Buffett Sold Apple Stock?

Jeremy Bowman

04/06/2024

Berkshire Hathaway is reducing its hold on its top holding.

Apple ( AAPL 0.17 percent) may be one of the top-performing stocks of the century, but recently the company’s performance hasn’t been as impressive. Apple did not outperform that of the S&P 500 in an impressive margin in the first quarter of this year, as its price is down just 1% in contrast to a near 11% rise for its S&P 500.

While many of its major tech competitors have risen in recent months over the hype surrounding the rise of artificial technology (AI), Apple seems to be being left behind by the latest technological trends. The results for its quarterly report continue to show that the company is having difficulty growing revenue because its iPhone market that drives the bulk of its revenue continues to grow.

To compound its problems, Apple seems to be losing support from its biggest investor. Warren Buffett’s Berkshire Hathaway (BRK.A -2.17%) (BRK.B -1.27 0.27 percent) reduced the stake it holds within Apple to the extent of a second time consecutively in the first quarter of 2024. In this instance, Berkshire Hathaway sold more than 116 million shares of Apple and reduced its Apple holdings by 13 percent. The stock’s performance was poor its value within the Berkshire portfolio dropped from over 50 percent at conclusion on the quarter’s fourth, to under 41% by the end of the year.

Source: The Motley Fool.

Is Buffett turning on Apple?

Warren Buffett is more open than other billionaire investors in discussing the stocks he purchases and sells. However, investors are often uncertain about Berkshire’s share transactions and purchases. At Berkshire’s annual shareholder gathering in the beginning of the month of May Buffett received a question about the sale of shares in Apple. In his response, Buffett implied that the sale was in connection with potential changes to capital gains tax rates, and the desire to lock in some of Berkshire’s gains.

In discussing the capital gain rate, Buffett stated to shareholders in the meeting “I’m doing it at 21% this year and we’re doing it at a little higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year.”

But, it’s not likely to provide the full explanation for Berkshire’s decision not to sell the Apple stake. Buffett has spoken highly of Apple as a company several times throughout the years He has even said that he views Apple as Berkshire’s 3rd business, after its insurance division along with the BNSF railroad. But, Berkshire also adjusts its holdings, and Apple’s latest earnings report could provide an reasons why investors is likely to sell their shares.

Revenues for the second quarter of fiscal 2024 decreased 4% year-over one year to $90.8 billion. This was due to iPhone sales fell, and Apple is facing difficulties in China. While the service business is growing however, it’s not growing quickly enough to support Apple’s previous growth strategy. The company requires sales of products to increase to. When growth slows profits per share (EPS) was essentially stagnant during the time and increased mainly due to the high shares of buybacks and the higher margins increase in the demand for services.

Are Apple’s economic barriers shrinking?

Another possible explanation for Berkshire’s sale could be due to the iPhone maker’s financial moat isn’t as robust as it used to be. Apple doesn’t face a threat from a rival However, in several ways, the company has to compete against its own.

If a company plans to market new devices and smartphones and tablets, they must be substantially better than their predecessors to entice investors to continue buying the devices. The cycle of upgrade or the length of time that consumers have to wait before they buy a brand new iPhone has been growing longer, which puts the pressure upon iPhone sales.

With Apple set to launch its 16th-generation iPhone device in the coming months There could be a bit of customers’ discontent over the brand’s flagship phone, and investors’ perception that it is in need of an alternative growth driver. In addition, the perception of a lack of investments in AI could see it linger in the mud in the near future in the same way that competitors such as Microsoftand Alphabetseem to be diving into the deep bottom of the water when it comes down to AI.

In the end, Apple stock is still priced high based on the traditional indicators. It’s trading at an price-to-earnings-ratio of 30. This is an particularly high valuation for a company experiencing a decline in revenue. Apple might be able to return to higher sales growth but for the time being the stock appears to be in danger of experiencing an eventual decline as the company is shrinking.

It’s possible that this isn’t the real motive behind why Buffett has sold Apple but it’s definitely not an acceptable reason for current shareholders to buy the shares. Apple is struggling with its primary business. It appears to be falling far behind its AI competition, while its valuation is high. If it’s Buffett or not these are all great reasons to think about selling Apple stocks right now.