Investing guru Warren Buffett recently sold nearly half his stake in Apple (AAPL -1.38%) in the second quarter. Despite selling the stock for three straight quarters, the Oracle of Omaha indicated that the iPhone maker will likely remain a core holding for Berkshire Hathaway.

That said, lets look at four reasons why investors should follow Buffett and lighten up their Apple holdings.

1. Potential loss of payments from Google

During the U.S. government's antitrust case against Alphabet, it was revealed that Apple was getting a hefty sum of money to allow Google to be the default search engine on its devices. As the partnership evolved over the years, Apple was able to negotiate a deal to get 36% of the revenue from searches through its Safari browser. In 2022, that came out to be more than $20 billion.

It is also worth noting that most of this revenue likely flows straight to the bottom line and is pure profit and cash flow as well. Apple's revenue from the deal is also likely higher now than the $20 billion it was in 2022.

The problem is that the heart of the government's case centered around these deals, and with Google being declared a monopoly engaging in anti-competitive practices, these exclusive default search engine deals could go by the wayside. Or at the very least, Apple could see less revenue from search engine providers than in the past.

Apple is on pace to generate a gross profit of around $185 billion this fiscal year. That would put Google's contribution to around 10% to 15% of that total, which is a pretty sizable chunk that could go away.

2. Regulatory risk

While Apple is facing potential blowback from the Google antitrust case, it faces its own antitrust lawsuit from the U.S. government as well. In fact, the company has long been in the government's crosshairs, as this is the third time in the past 15 years that the federal government has sued Apple over antitrust practices.

The latest lawsuit revolves around the company's closed ecosystem and how it hinders third-party apps. In its lawsuit, the government says that Apple suppresses innovation through its control of app distribution and APIs, all while taking a 30% cut for a service in which it does not create nor develop anything. It also claims that Apple makes its product worse for consumers and makes switching costs higher in order to keep its monopoly.

While lawsuits can be unpredictable, the U.S. government clearly appears to have an agenda of reeling in big tech companies. This adds additional risk to an Apple investment.

Hand holding smartphone looking to use pay feature.

Image source: Getty Images.

3. China

While Apple saw some improvement in China in its latest quarter, sales still dropped by 6.5% in the country. China is a large market, and competition from local smartphone makers has made the environment more challenging.

Unlike in other markets, the company has had to turn to promotions to help bring in sales. As a premium brand, this is not something you want to see.

Meanwhile, while Apple is looking toward artificial intelligence (AI) to help bolster sales, that could be an issue in China. The reason being the Chinese government has strict rules around the use of AI. In fact, unlike in the U.S., the company would need its AI model to be approved by the government for it to be used.

Chinese-based companies, meanwhile, are more likely to be willing to mold their products and AI offerings to meet government standards while bringing a more culturally focused user experience. This could put Apple at a disadvantage in the country at a time when competition has increased.

4. Valuation

Apple has seen its valuation multiple expand greatly following the pandemic. Before Covid, it wasn't uncommon to see the stock trade at a price-to-earnings (P/E) multiple of 15 times or lower. Today, its P/E is over 33 times. This is despite pretty modest revenue growth the past couple of years. In fact, revenue fell 3% last fiscal year, and it dropped nearly 1% the first half of this fiscal year before rebounding to 5% revenue growth in fiscal Q3.

AAPL PE Ratio (Forward 1y) Chart

AAPL PE Ratio (Forward 1y) data by YCharts.

The simple fact is that the stock's higher valuation multiple has come at a time when the company has been struggling, not excelling. If Apple were to return to its pre-COVID valuation multiples, the stock could fall even if the company's operational performance starts to improve. That, combined with the risks noted above, is reason to consider following Buffett and taking some profits in Apple's stock.