Buffett's retreat from Apple: A reason to panic or a thoughtful move?
For some, Berkshire Hathaway's reduced stake in Apple Inc. may signal a loss of confidence in the iPhone maker's growth story. But many on Wall Street are urging investors not to be swayed and to remain calm. There are reasons for the move, which don't necessarily indicate a lack of confidence in Apple.
Buffett's decision
The Warren Buffett-led conglomerate announced that it sold nearly half of its stake in Apple to $AAPL+3.7%in the second quarter . The move reduced the value of its stake to about $84 billion from the previous $140 billion at the end of March. The sale came amid a sharp rise in Apple shares, which gained 23% during the period and pushed the S&P 500 index to new records.
Since 2016, when Warren Buffett first announced his stake in Apple, the company's stock has risen nearly 900%, giving Berkshire billions of dollars in unrealized gains. "Reducing Buffett's stake in Apple is just a matter of risk management," said Joe Gilbert, senior portfolio manager at Integrity Asset Management. "If there were any concerns about the long-term viability of Apple, Buffett would sell the entire stake."
Reasons to sell
Berkshire made its decision public just days after Apple reported its quarterly results, which showed a return to revenue growth and suggested that new artificial intelligence-based features will boost iPhone sales in coming quarters. Apple shares remained steady after the results announcement and closed the week higher, despite the broader market sell-off.
Although the investment strategy of Buffett, known as the "Oracle of Omaha," is hard to miss, Berkshire's stake in Apple has become so significant in recent years that some investors have begun to speculate whether the company will have to reduce its holdings to balance out its holdings. Even after this sale, Apple remains Berkshire's largest single stake.
"When you have a position this dominant, it makes sense to take some of the profits and reduce concentration risk," said Cathy Seifert, an analyst at CFRA. "They still have a relatively concentrated portfolio, though." she added.
Further context and implications
Apple
AAPLThis is not the first time Berkshire has reduced its stake in Apple. At its annual meeting in May, the firm announced it had already reduced its stake during the first quarter of this year. Buffett suggested at the time that tax considerations may have played a role in the sale.
The latest announcement comes at a time of broader concern about a possible economic downturn. Worse-than-expected jobs data on Friday raised concerns that the Federal Reserve may have waited too long to start cutting interest rates, leading to a technical correction in the Nasdaq 100 index and a rise in the Cboe volatility index toward 25.
Technology giants such as Microsoft Corp, Amazon.com Inc and Alphabet Inc have seen declines from record levels reached in early July. Overall, Nasdaq 100 members lost over $3 trillion in value, with Nvidia Corp. and Tesla Inc. posting declines of over 20%. Apple, meanwhile, has fallen roughly 6% from its all-time high.
It's possible that Berkshire, like a growing number of investors, wants to see more evidence that Apple's AI investments will deliver revenue growth, and isn't convinced that's happening fast enough. Apple's value - 33 times future earnings as of mid-July - was 11 points higher than that of the broader S&P 500 index, a gap last seen after the pandemic and financial crisis.
Despite the premium, it still makes sense to own Apple stock, thinks Brian Mulberry, client portfolio manager at Zacks Investment Management. "They still have a healthy balance sheet and will grow earnings faster than the broader market," he said.
Source: Yahoo Finance, CNN.
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