NEW YORK – To some, Berkshire Hathaway’s gutting of its Apple stake could be interpreted as a lack of conviction in the iPhone-maker’s growth story. But many on Wall Street are urging investors to look past the news and stay calm.
The conglomerate led by billionaire investor Warren Buffett revealed on Aug 3 that it sold almost half of its position in the tech giant during the second quarter.
Its stake now stands at roughly US$84 billion (S$111 billion), down from about US$140 billion at the end of March. The selling took place during a torrid run in the stock market that sent Apple shares 23 per cent higher and pushed the S&P 500 from one record to the next.
Since 2016, when Mr Buffett first disclosed his firm’s stake in Apple, the iPhone-maker’s shares have soared almost 900 per cent as the company cemented its grip on the industry, delivering Berkshire billions of dollars worth of unrealised profits along the way.
“Buffett’s reduction of his Apple stake is merely about risk management,” said Mr Joe Gilbert, senior portfolio manager at Integrity Asset 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 unrealised gains.”
Berkshire’s portfolio reveal comes just days after Apple released its own quarterly results, which showed a return to revenue growth and signalled that new artificial intelligence (AI) features will boost iPhone sales in the coming quarters.
Apple shares were steady after the earnings report and ultimately ended the week higher despite the broader sell-off.
While the investment strategy of Mr Buffett – long known as the Oracle of Omaha – is hard to ignore, Berkshire’s stake in Apple had grown so large in recent years that some investors had begun to wonder whether the firm would have to trim its position to balance out its holdings. Even after the unwind, Apple remains Berkshire’s largest single position.
“If you’ve got this outsized position, you take some profits, and you reduce some of your concentration risk,” said Ms Cathy Seifert, a research analyst at CFRA. “They still have a fairly concentrated portfolio.”
It is also not the first time Berkshire has cut its stake in Apple. At its annual meeting in May, the firm revealed that it had reduced its position during the first quarter of the year. At the time, Mr Buffett hinted to investors that tax implications may have played a role in the sale.
The latest announcement comes amid broader concern about the potential of an economic downturn ahead. Worse than expected jobs data on Aug 2 stoked fears that the Federal Reserve may have waited too long to start reducing interest rates, sending the Nasdaq 100 Index into a technical correction.
Megacap peers, including Microsoft, Amazon.com and Google parent Alphabet, have all tumbled from record highs reached in early July. In total, Nasdaq 100 members have shed more than US$3 trillion in value over that stretch, with both Nvidia and Tesla each seeing declines of more than 20 per cent. Apple, meanwhile, is down about 6 per cent from its all-time high.
It is possible that Berkshire, like an increasing number of investors, wants to see more proof that Apple’s AI investments will pay off with revenue growth and is not convinced that is happening fast enough, according to Mr Brian Mulberry, client portfolio manager at Zacks Investment Management.
Of course, Apple is not the only stake that Berkshire has trimmed lately – it has been unloading shares of Bank of America, cutting its position by 8.8 per cent since mid-July.
Some see that as a sign that Mr Buffett does not see any individual problems with either company, but is instead betting that the US consumer and broader economy are set to weaken.
“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,” said Mr Jim Awad, senior managing director at Clearstead Advisors.
“He may smell an opportunity coming.” BLOOMBERG
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