This month, 95-year-old investing legend Warren Buffett wrote his farewell letter to Berkshire Hathaway shareholders. He plans to retire from his role as the company's CEO by the end of the year. And it will cap off one of the most legendary investment careers in history. Under Buffett's leadership, Berkshire has outperformed the S&P 500 index, although returns have converged sharply in recent years.
However, while Warren Buffett has made plenty of good calls, some stocks in the Berkshire Hathaway portfolio look distinctly beyond their sell-by date. Let's explore why it might be time for long-term investors to say goodbye to Apple (AAPL 0.29%) and Sirius XM (SIRI 0.42%).
Apple
Warren Buffett began investing in Apple in early 2016, breaking a long-standing tradition of avoiding technology companies because he preferred to focus on simple industries that face less risk of change and disruption. Today, Berkshire's Apple position is worth $77 billion, representing 24% of the entire portfolio. But as generative artificial intelligence (AI) rises in prominence, Buffett's early trepidations seem more relevant than ever.
NASDAQ: AAPL
Key Data Points
It's not a secret that Apple has totally dropped the ball on generative AI relative to other big tech companies. This situation came to a head this month when Bloomberg reported that it is planning to pay Google $1 billion a year to use its large language model (LLM) technology to power the Siri voice assistant. While this is presented as an interim solution, it shows how far Apple has fallen behind in the generative AI race. And there is no reason to assume the company will quickly catch up.
According to the Los Angeles Times, the iPhone maker has only spent $14 billion on capital expenditures (capex) in its current fiscal year compared to Microsoft and Meta Platforms, which spent $94 billion and $70 billion, respectively. If AI turns out to be a useless bubble, Apple's restrained strategy could pay off. But if the technology ends up being as transformational as many expect, the once-leading tech company could turn into a laggard.
The deeper problem seems to be that Apple's leadership is more concerned with juicing stock price returns than with future-proofing the company through innovation. And they may see aggressive AI investments as diverting away capital that could go to other things, like share buybacks. In May, Apple outlined plans to repurchase a whopping $100 billion of its common stock. While this will make investors happy in the short term, it's hard to see Apple's story ending well.
Sirus XM
Warren Bufffett began accumulating Sirius XM shares in 2016, and Berkshire now owns over 35% of the satellite radio company. But while Apple is a dominant tech company that risks being disrupted over the long term, Sirius XM has already been disrupted. Shares have dropped 64% over the last five years, and more downside is likely because the company's radio services are overshadowed by the alternatives.
Image source: Getty Images.
On the surface, it's easy to see why Warren Buffett might like a company like Sirius XM. For starters, it's essentially a monopoly in the satellite radio industry (regulators allow this because it faces competition from terrestrial radio). Furthermore, it is profitable and boasts an extremely low valuation with a forward price-to-earnings (P/E) multiple of just 7.2 compared to the S&P 500 average of 22. But that's where the good news ends.
NASDAQ: SIRI
Key Data Points
At its core, radio is a fading industry. Now, consumers face a slew of new in-car entertainment options such as Apple CarPlay and Android Auto, which allow them to select exactly what they want to listen to. These features are increasingly being included as standard features in many new cars. And Sirius's growing irrelevance is reflected in its financial results.
Third-quarter revenue fell roughly 1% year over year, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 2% to $676 million. While Sirius is arguably a cash cow, investors who prioritize growth and long-term staying power should look elsewhere.
