Is Warren Buffett and his team at Berkshire Hathaway (BRK.A 0.04%) (BRK.B 0.44%) holding a fire sale of Apple (AAPL 0.31%) stock? The latest indications seem to suggest this. After all, following something of a break, the famous financier's investment vehicle again sold a chunk of Apple shares in the second calendar quarter, according to the company's latest 13F filing.
All told, Berkshire Hathaway lightened its stake in the tech giant by 20 million shares, bringing the total down to 280 million at quarter's end. That was quite the eye-opener for Apple investors. However, does it necessarily mean they should follow the great investor's lead and sell the stock too?
Familiar feeling
It's understandable if any Apple- or Berkshire-watcher was blasted with deja vu on this news. From the end of 2023 through the second quarter in the following year, Buffett and Berkshire had been consistent and aggressive Apple sellers before taking the aforementioned pause.
Image source: The Motley Fool.
This latest divestment paled in comparison to those early ones. Between December 2023 and the end of June 2024, Berkshire sold nearly half of its Apple stake.
Buffett usually doesn't care to explain the reasoning behind Berkshire's moves in its vaunted equity portfolio when they happen. So we can only speculate as to the motives for this one.
My gut feeling is that much of this has to do with portfolio rebalancing. Berkshire first loaded up on Apple stock in 2016, which was a surprise to many given Buffett's historical aversion to tech companies. He sure liked this outlier, though, as it doubled and then some from the beginning of 2020 to the immediate post-pandemic period.
Despite Buffett and Berkshire's golden reputation, it's actually rare that one of their equity holdings vaults so high in such a short space of time. Apple's surge was a happy occurrence but it led to a problem -- it started becoming an oversized presence in the Berkshire stock collection. In fact, as 2023 came to a close, Apple alone comprised almost 50% of the value of the company's equity portfolio.
A weighty company
Any good investment manager espouses the value of diversification, and Buffett has always embraced the principle too. Even in the relatively early years before the investor was something of a household name, Berkshire was big on spreading its (even back then) considerable wealth around.
The company's 1980 annual report detailed its holding in 18 stocks, with a combined market value at the time of just under $530 million (hard to imagine these days, as the portfolio now tips the scales at almost $300 billion). Back then, none of the stocks had a weight of more than 20% of the total portfolio (again, in terms of market value).
When Buffett and his crew began divesting the Apple shares early last year, I thought then that much of it had to do with lightening the stock's load in Berkshire's equity lineup.
I feel the same way today as, even after that the sale of 20 million shares, Apple is still the No. 1 position in terms of both total market value ($63.6 billion, to be exact) and share of portfolio, at more than 21% -- however, that's well below the nearly 50% not very long ago.
Hold on to the fruit
So what does this mean for Apple stock, and does this presage a wider investor sell-off?
Outside of the usual copycat moves, as Buffett's trades are mirrored by many individual and corporate investors alike, I don't believe so. Apple has been rather a weak performer as a stock lately as the growth of product sales -- as ever, its top revenue source -- hasn't been inspiring. Meanwhile, the top line for services isn't rising fast enough to compensate for this slowdown.
Yet that increasingly crucial category is contributing more to Apple's revenue stream, rising by 13% in its most recently reported quarter to $27.4 billion. That was notably better than the 8% increase of product sales, which landed at $66.6 billion.
And absent any great leap in hardware technology -- like the iPhone in 2007 -- the services category has greater potential for growth than products. For me personally, the many revenue streams available to Apple in the services sphere are a key reason I hold onto the stock. It's not because I believe there's a monster, whiz-bang new tech toy coming from the company anytime soon.
Ultimately, then, I don't think Apple stockholders should unload their holdings as Berkshire has done. Again, I feel the company's latest divestment is due more to the structure of that equity portfolio than concern about Apple's business.
