Buffett Betrayed AAPL ? APPL Failed Buffett ?
Starting in Q4 2023 Berkshire Hathaway started selling $Apple(AAPL)$ shares.
It sold about 10 million shares in total. However, that was not the end, only the beginning.
According to Reuters, Mr Warren Buffett has further “sold down” Berkshire ’s holdings of Apple stock in H1 2024:
116 million shares in Q1 2024
389 million shares in Q2 2024.
As of 30 Jun 2024, that represented a -55.8% reduction in Berkshire’s Apple holdings. (see below)
So Much !
No one will know exactly why Buffett sold such a huge chunk of Berkshire’s Apple stock.
It is possible that Apple’s (a) tepid growth rate and (b) high valuation suggest the famed investor may have concluded the stock’s prospects are not great.
Optimistically, Apple’s latest artificial intelligence (AI) offerings could give consumers a reason to upgrade their existing iPhones.
Pessimistically, taking into considerations Apple’s recent headline news, it could also be said that Apple will be lucky to even achieve, low single digit revenue growth.
Negative headlines included:
Declining revenues in China.
Regulatory woes.
Absence of a compelling growth vector. Meaning, what if Apple Intelligence does not prove to be a killer app.
No doubt, investors will take a cue from Buffett, as a result of the 13F filing, big reveal.
Buffett & Apple History.
Apple has been a good investment for Mr Buffett.
He began buying the iPhone maker’s stock in 2016,
In total, Berkshire has spent about $40 billion in purchase
In return, Apple shares have delivered a total return of nearly +800% since Berkshire first disclosed its stake, noted the Financial Times.
Mr Buffett has even praised Apple during the 2024 annual shareholders’ meeting on 04 May 2024 at Omaha, Nebraska.
Noted by the Wall Street Journal (WSJ), Mr Buffett had called Apple “an even better business” than Berkshire’s 2 other large holdings.
Namely $American Express(AXP)$ and $Coca-Cola(KO)$.
Why Sell ?
During the meeting, when asked about the sale, Mr Buffett alluded to tax rates as a reason to take profits.
Meaning ?
According to CNBC, Mr Buffett justified selling “a little” (of Apple shares) would benefit shareholders in the event US Treasury department, raises “capital gains” taxes in the future “to plug a climbing fiscal deficit”.
According to CNBC, Mr Buffett sold “a little” Apple shares because he feels it is good for shareholders.
He is worried that US Treasury department might raise “capital gains” taxes in the future; to help “plug” the US government’s fiscal deficit.
It sounds logical at that point in time.
Looking back (now), does his actions make you wonder whether the words were aimed at getting a higher price for his Apple shares ?
How so ?
Well, Mr Buffett :
Slashed Berkshire’s Apple stake 13% in Q1 2024.
He then jettisoned another 49% in Q2 2024.
Ended June 2024 with an Apple position worth $84.2 billion, noted the Wall Street Journal (WSJ) — citing Berkshire regulatory filings.
Follow Buffett & Sell ?
With Mr Buffett sold more than 50% of his stake in Apple (in 2024), was he jesting when he referred to selling a “little” Apple stock?
Is future capital gains rate increases the real reason why Mr Buffett sold so much of Apple stock in H1 2024 ?
With that comes the question - Should we follow and sell too?
Reasons To Buy.
The best reason to buy Apple stock is the company’s AI strategy, hinging on a revamped & improved Siri digital assistant that could motivate more people to upgrade their iPhones.
As noted by Investor’s Business Daily, the refreshed Siri would:
Work across apps and retrieve information from messages, emails, calendar, photos and other apps.
Summarize emails and webpages and transcribe calls.
Generate custom emojis and other images..
Arguments to own Apple stocks:
(1) AI iPhones could give people a reason to upgrade.
Analysts believe AI capabilities will encourage consumers to upgrade to the iPhone 16 series, come Autumn 2024.
The upgrade cycle for AI iPhones will be “stronger for longer” because Apple is staggering its rollout of AI features for the iPhone.
(2) Old iPhones and Satellite connectivity to drive iPhone sales.
Many iPhone handsets have not been upgraded for > 4 years.
Some 270 million iPhones that is approximately 18% of the worldwide installed base were last upgraded > 4 years, noted by Wedbush Securities analyst Daniel Ives.
Lastly, Apple's plan to add satellite connectivity to its iMessage app in autumn 2024, could spur iPhone sales.
Reasons To Sell.
Investors liked Apple because Buffett owned lots of Apple shares.
Now that Buffett has sold a big chunk of his Apple shares and the possibility, he may sell more this year should give investors a reason to think about what is motivating him.
Meanwhile, Apple faces significant headwinds:
(1) Apple’s decelerating revenue.
Between 2010 and 2020, Apple revenue grew at a +15.5% average annual rate.
During pandemic of 2021 and 2022, Apple enjoyed a surge in revenue growing at nearly +20% annual rate.
With pandemic over, between 2022 and March 2024, Apple’s revenue declined almost every quarter.
It’s revenue finally broke that pattern and rose +5% in June-2024 ending quarter.
(2) Apple’s AI strategy may not add much revenue growth.
Apple Intelligence may not represent a significant improvement to the features of AI chatbots now on the market.
After all, the iPhone is a 17-year-old product whose revenues fell -10% in Q1 2024.
Upgrading Siri slightly may not be a good enough reason for users to go out and buy new Apple devices.
According to a June 2024 Forbes post, Apple will need a generative AI killer app; just like the iTunes store was for the iPod.
(3) Apple’s declining iPhone sales in China.
In the June-ending quarter, a 14% increase in services revenue offset the -5.7% fall in Apple’s iPhone sales in China.
To be sure, as of July 2024, Apple had the biggest smartphone market share in the US, with 55.91%, according to Oberlo.
As noted by CNBC, Apple's market share in China’s smartphone market had dropped to 14% — putting the iPhone in 6th place in Q2 2024..
(4) Apple’s legal woes.
On June 2024, EU regulators accused Apple of violating its Digital Markets Act with its App Store policies.
In March 2024, Apple faces a domestic lawsuit brought by the US Department of Justice.
They are accusing Apple of “restrictive iPhone and App Store policies” - violating US antitrust laws.
In an issued statement, Apple said it will “vigorously defend against the lawsuit” tat it claimed was “wrong on facts and the law”.
Analysts expect the lawsuit to create “headline risk” during its 2 to 3 years duration.
(5) Apple has little else to propel its growth.
In late February 2024, Apple swallowed the bitter pill and canceled its autonomous EV project.
Having spent 10 years and an estimated $10 billion on the EV project, Apple's near-term growth outlook is “anemic to negative” said Investment bank Needham.
Ultimately, Buffett’s reasons for dumping so much Apple could be a simple matter of valuation.
When Berkshire began buying, Apple traded for < 15x projected earnings.
Currently, the iPhone maker trades around 30x projected profits for fiscal year ending September 2025 - reports Barron.
Edward Jones analyst Jim Shanahan shared with Bloomberg:
The scale of Buffett’s sale of Apple in H1 2024 suggests he may sell more.
To assume that it would really be far-fetched for Mr Buffett to sell his remaining Apple stake, may not seemed far-fetched anymore.
“Zero (holdings) is not out of the question now” said Jim.
Jim’s parting thoughts “you wonder if people will really want to upgrade their iPhones because of the new AI features. If Buffett thinks the same, he might sell even more Apple shares. And soon.
My viewpoints: (mine only)
I do not deny that selling 515 millions Apple shares sounds like a lot and it is a lot of shares.
If you look at Berkshire Hathaway’s Q2 portfolio, Apple Inc still occupies 30% of it entire holdings. (see below)
Berkshire’s top 5 holdings:
Apple.
American Express.
Coca Cola.
— still account for over 73% of the total portfolio, down by -3% from 76% (taken in Q1 2024).
When looking at the Apple sell off in perspective, it does not seems so impactful now - does it.
Nevertheless, the probability of further re-balance of Berkshire’s portfolio remains a possibility and should not be discounted.
Regarding Apple’s +20% revenue surge during the pandemic period of 2021 to 2022, it should be considered a “one off” because it is not sustainable as demand was caused by lockdown.
I wonder too if Mr Buffett should have held back his sales until Q3 2024 because if you look at Apple now, its $226 per share (as of 16 Aug 2024 closing price) versus the price he sold his Apple’s stake. (see below)
As for Apple Intelligence, Apple’s AI product - it is still too early to count your chickens before they are hatched.
Too soon to tell if Apple Intelligence will be a resounding success or a total failure.
Even if it is a dud, quite certain Apple Inc will know what to do, to make it work.
For now, let’s enjoy the surge in its stock price. You deserve it, especially for hanging onto Apple for so long…
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He always does things so ahead of people, very long..
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