Is Warren Buffett’s Loyal to Apple Misplaced? Is It Time for Him to Sell Berkshire Hathaway’s AAPL Holdings?

by

As an experienced financial analyst, I have closely followed the investing strategies of Warren Buffett and Berkshire Hathaway for many years. The recent turn towards tech giants like Apple Inc. (AAPL) by Buffett was indeed surprising given their historical reluctance in this sector. However, Buffett’s change in perception, driven by Apple’s strong brand loyalty, high customer retention rates, and the addictive quality of its products, led to a significant investment in the company.

In an article published by The Wall Street Journal (WSJ) penned by Gregory Zuckerman, it was revealed that Warren Buffett, renowned for his conservative investment approach, took an unexpected turn in 2016 when Berkshire Hathaway acquired shares of Apple Inc. (NASDAQ: AAPL). Traditionally, Buffett and his partner, Charlie Munger, had avoided tech stocks, with Munger dismissively labeling Apple as “un-Berkshirelike” in a 2013 Reuters interview. This shift from their established investment strategy was noteworthy, particularly given Buffett’s previous doubts about the potential value of Apple’s stock.

According to a Wall Street Journal article, Buffett’s initial hesitance towards investing in Apple changed as he came to see the tech giant more as a consumer goods firm with robust pricing power thanks to its strong brand following. This perception was reinforced by Apple’s impressive customer retention rates and the addictive nature of its products, leading Buffett and Berkshire Hathaway to significantly boost their stake in the company. The investment began with a purchase of around 10 million shares in 2016, followed by additional investments totaling roughly $36 billion over the next two years. By the close of 2018, Apple represented approximately a quarter of Berkshire’s investment portfolio, making it one of Buffett’s most substantial individual investments.

According to a report by The Wall Street Journal, Berkshire Hathaway has reaped immense profits from this investment. Currently, Berkshire’s Apple stake is estimated to be worth approximately $157 billion, even though Apple’s stock price has experienced recent decreases.

The impressive achievement of Berkshire Hathaway is reflected in its realization of around $120 billion in profits, representing a remarkable triumph over the S&P 500 index during the same timeframe.

Apple, the tech behemoth, is currently grappling with fresh hurdles as underscored by the Wall Street Journal. The company is under regulatory scrutiny, witnessing decelerating expansion in China, and encountering intensified rivalry in the technology sector, specifically in artificial intelligence. These elements amplify the risk quotient for Apple’s stock, which has already experienced a 6.79% decline this year.

When pondering the succession plans for Berkshire Hathaway, Warren Buffett faces a significant dilemma regarding the management of their considerable Apple stock. Although they have sold some shares, Berkshire continues to own a significant percentage of Apple’s outstanding stock. This choice to retain such a vast investment underscores Buffett’s faith in Apple’s future worth, even amidst the company’s present hurdles and the rapidly evolving tech sector.

Yesterday, Apple reported its fiscal second quarter 2024 results, which ended on March 30, 2024. Apple achieved a record-breaking revenue of $90.8 billion in this period. As mentioned by Apple’s CEO Tim Cook, the company experienced a new high in its Services segment revenue during this quarter. The announcement was notable for the launch of the highly anticipated Apple Vision Pro, expanding the horizons of spatial computing. In the upcoming week, Apple is expected to reveal another groundbreaking product (speculated to be a new iPad Pro). Furthermore, anticipation continues to build up towards the Worldwide Developers Conference scheduled for the following month. Cook reaffirmed Apple’s dedication to delivering exceptional products and services, reflecting its long-standing values.

Apple has reported remarkable customer satisfaction and loyalty, resulting in an unprecedented number of active users across all product lines and regions. This impressive performance has translated into a new earnings per share (EPS) record for the March quarter, according to Apple’s Chief Financial Officer, Luca Maestri.

For the twelve consecutive years, the board has raised the quarterly dividend, now standing at $0.25 per share, marking a 4 percent hike. The dividends are scheduled for distribution on May 16, 2024, to shareholders whose names appear in the company’s records by the close of business on May 13, 2024. Moreover, the board has announced a substantial new share repurchase program, worth an additional $110 billion, to purchase Apple’s common stock. According to Apple, these decisions reflect the board’s unwavering faith in Apple’s inherent value and future growth prospects, with the intention of providing further benefits to its loyal shareholders during this prosperous financial period.

At the current pre-market trading session, which is taking place at 11:25 a.m. UTC on May 3, Apple Inc.’s stock (AAPL) is priced at $183.79, marking an increase of $10.76 or 6.22%. The only plausible reason for this surge in share value, given the underperformance of hardware sales, is Apple’s massive $110 billion stock buyback program.

Based on data from CNBC’s analysis, overall sales for Apple decreased by 4% and sales of iPhones specifically dropped by 10% in the recent quarter compared to the same period last year. Apple acknowledged that these declines were due to challenging circumstances when contrasted against the previous year’s sales figures.

Should Apple fail to make significant strides in artificial intelligence or boost its sales expansion by the end of this year, Berkshire Hathaway’s Warren Buffett might reconsider his continued investment in the tech giant.

Read More

2024-05-03 14:41