To some, Berkshire Hathaway Inc.’s significant reduction of its Apple Inc. stake might be seen as a sign of waning confidence in the tech giant’s growth potential. However, many experts on Wall Street are urging investors to remain calm and not overreact to the news.
The Warren Buffett-led conglomerate disclosed on Saturday that it had sold almost half of its position in Apple during the second quarter, reducing its stake from about $140 billion at the end of March to roughly $84 billion. (Click Here to view the latest quarterly report from BRK) This decision came during a period of remarkable performance in the stock market, with Apple shares climbing 23% and the S&P 500 reaching new record highs.
Since 2016, when Buffett first invested in Apple, the company’s shares have soared nearly 900%, cementing Apple’s dominance in the industry and delivering substantial unrealized profits to Berkshire Hathaway. Despite the recent sell-off, many analysts view this move as a strategic decision rather than a signal of declining faith in Apple.
Joe Gilbert, senior portfolio manager at Integrity Asset Management, explained, “Buffett’s reduction of his Apple stake is merely about risk management. If there were any concerns about the longer-term viability of Apple, Buffett would have exited the entire position. Similar to Berkshire’s other stock position reductions, Buffett has meaningful unrealized gains.”
Berkshire’s portfolio adjustment coincided with Apple’s quarterly results, which indicated a return to revenue growth and potential boosts from new AI features in upcoming iPhone models. Apple’s shares remained steady post-earnings and ended the week on a positive note, despite a broader market sell-off.
Berkshire Hathaway’s stake in Apple had grown so large in recent years that some investors speculated the firm would need to trim its position to manage its portfolio balance. Even after the reduction, Apple remains Berkshire’s largest single holding.
Cathy Seifert, a research analyst at CFRA, noted, “If you’ve got this outsized position, you take some profits and reduce some of your concentration risk. They still have a fairly concentrated portfolio.”
This isn’t the first time Berkshire has reduced its Apple stake. During its annual meeting in May, the firm revealed a reduction in its Apple position in the first quarter of the year. At that time, Buffett hinted that tax considerations might have influenced the decision.
The latest reduction comes amid concerns about a potential economic downturn. Worse-than-expected jobs data released on Friday heightened fears that the Federal Reserve might have delayed interest rate cuts for too long, impacting the Nasdaq 100 Index and driving the Cboe Volatility Index toward 25.
Tech giants like Microsoft, Amazon, and Alphabet have also experienced significant declines from their record highs in early July. In total, Nasdaq 100 members have lost more than $3 trillion in value, with companies like Nvidia and Tesla seeing declines exceeding 20%. Apple, meanwhile, is down about 6% from its peak.
Brian Mulberry, client portfolio manager at Zacks Investment Management, suggested that Berkshire might be seeking more evidence of returns on Apple’s AI investments. He pointed out that Apple’s valuation multiple, at 33 times future profits, was notably higher than the broader S&P 500, a disparity last seen during the post-pandemic period and the financial crisis. Despite this, Mulberry believes it still makes sense to hold Apple shares, citing the company’s healthy balance sheet and faster-than-market earnings growth.
Wedbush analyst Dan Ives also remains optimistic, emphasizing Apple’s strong brand loyalty and future growth prospects. He predicts a significant upgrade cycle that will drive revenue growth in 2025 and 2026. Ives stated, “While some could read this as confidence worry, Apple just delivered a robust quarter with a massive AI-driven super cycle ahead and we do not view this as the time to hit the exit button.”
Berkshire Hathaway has also been trimming other holdings, such as Bank of America Corp., reducing its position by 8.8% since mid-July. This broader strategy suggests that Buffett’s moves are not necessarily about specific companies but rather about positioning for potential economic downturns.
Jim Awad, senior managing director at Clearstead Advisors, commented, “Buffett may feel we’re about to go into a recession, so by raising cash now he will be able to buy companies cheap later on. He may smell an opportunity coming.”
In summary, while Berkshire Hathaway’s reduction of its Apple stake has raised some concerns, many experts advise investors to stay focused on Apple’s strong fundamentals and long-term growth potential. Reacting hastily to high-profile trades can lead to unnecessary volatility and missed opportunities.
