You'd be hard-pressed to find a bigger Apple (AAPL 2.21%) bull than Warren Buffett. The legendary investor has led Berkshire Hathaway to build a stake in Apple worth over $170 billion. That makes the tech giant Berkshire's biggest holding by far. It also makes Berkshire Hathaway the third-largest Apple shareholder, trailing two huge fund managers.
But all things come to an end eventually. Will Buffett soon begin selling Berkshire Hathaway's massive position in Apple stock?
NASDAQ: AAPL
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Why Buffett might consider selling Apple
This could seem like an absurd question to pose. However, it's not a farfetched idea that Buffett might consider selling Apple, perhaps over the next few quarters.
I'd rank valuation as the top potential reason for Buffett selling Apple because it's always a top consideration for him. Apple's shares currently trade at 28 times expected earnings. That wouldn't be a ridiculously high forward-earnings multiple if the company was delivering stellar growth, but Apple isn't.
In Apple's fiscal 2024 first quarter, which ended on Dec. 30, 2023, the company reported year-over-year revenue growth of only 2%. And that underwhelming level came on the heels of record-high services revenue.
There's no compelling reason to expect Apple to return to strong growth anytime soon. China remains a weak spot. Although the newly released Vision Pro mixed-reality device is wowing a lot of customers, it's unlikely to move the needle much financially over the near term.
Another possibility is that Buffett could want to land an "elephant" (his term for making a big acquisition). While Berkshire has a cash stockpile of $152 billion, he could still want to keep some powder dry in case the stock market plunges and creates lots of great buying opportunities.
Why he might hold onto Apple
We only have to look at one of Buffett's most famous quotes to get a feel for why he might prefer that Berkshire hold onto its big position in Apple. In 1989, he wrote to Berkshire Hathaway shareholders: "[W]hen we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
There's still a good reason to view Apple as an outstanding business with an outstanding management team. For example, during the latest quarter, the company generated nearly $40 billion in operating cash flow and returned close to $27 billion to shareholders. And while Apple's revenue grew by only 2% year over year, its earnings per share jumped 16% to a record high.
Apple's ecosystem remains strong with extraordinarily loyal customers. The company's installed base of active devices topped 2.2 billion in its fiscal Q1. One recent survey found that four of the top five best-selling smartphones in the U.S. and Japan were iPhones. This provides a great foundation for the company to continue growing its services business.
Dismissing the impact of Vision Pro could also be shortsighted. Apple CEO Tim Cook isn't exaggerating when he said in the company's quarterly conference call that it's "the most advanced personal electronics device ever." Apple could have a huge long-term growth opportunity in spatial computing.
Will Buffett begin selling Apple or not?
Let's put aside the question of why Buffett might or might not sell Apple stock and return to our original question: Will he soon begin selling the stock? I wouldn't rule out the possibility that he will. However, I think it's highly unlikely.
In Berkshire's annual shareholder meeting held in May 2023, Buffett stated that Apple is a "better business" than any of the conglomerate's fully owned subsidiaries. Based on that comment, you could argue that it's more likely that Berkshire sells GEICO than that it slashes its position in Apple.
That said, I don't expect Buffett will buy any additional shares of Apple in 2024 barring a major sell-off. Valuation is still important to him, and Apple's valuation is indisputably high.
