Why Warren Buffett’s Berkshire Dumped 55.8% Of Its Apple Stock

Warren Buffett dumped 55.8% of Berkshire Hathaway’s holdings of Apple stock in the first six months of 2024, according to Reuters.

In the first half of 2024, Berkshire sold 505 million shares — 115 million in the first quarter and another 390 million in the second quarter. That represents a 55.8% reduction in Berkshire’s Apple holdings as of June 30 since the end of 2023, Reuters noted.

Why did he sell so much Apple stock? Should other investors follow suit?

I do not know why Buffett sold such a huge chunk of Berkshire’s Apple stock. However, Apple’s tepid growth rate and high valuation suggest the famed investor may have concluded the stock’s prospects are not great.

While Apple’s AI offerings could give consumers a reason to upgrade, the iPhone maker’s declining revenues in China, its regulatory woes, and the absence of a compelling growth vector — particularly if Apple Intelligence does not prove to be a killer app — could mean Apple will be lucky to achieve low single digit revenue growth.

I suspect other investors will take a cue from Buffett.

Buffett Has Sold A Chunk Of Berkshire’s Apple Stake

Apple has been a good investment. Since 2016, when Buffett began buying shares in the company, Berkshire has spent roughly $40 billion on the iPhone maker’s stock. Apple shares have delivered a total return of nearly 800% since Berkshire first disclosed its stake, noted the Financial Times.

Although Buffett has said nice things about Apple this year, his actions make me wonder whether the words were aimed at getting a higher price for his Apple shares.

How so? Buffett slashed Berkshire’s Apple stake 13% in the first quarter of 2024 and jettisoned another 49% in the second quarter, ending June with an Apple position worth $84.2 billion, noted the Wall Street Journal — citing Berkshire regulatory filings.

Buffett’s kind words for Apple came in May at Berkshire’s annual meeting. There he called Apple “an even better business” than two other large Berkshire Holdings — American Express and Coca-Cola, noted the Journal. At the meeting, he also alluded to tax rates as a reason to take profits in Apple.

Selling “a little Apple” this year would benefit Berkshire shareholders should the U.S. raise capital gains taxes in the future “to plug a climbing fiscal deficit,” he said, according to CNBC.

Should You Follow Buffett And Sell Your Apple Stock?

This raises questions: Now that he has sold more than half his stake in 2024, was Buffett kidding when he referred to selling a “little” Apple? Is the possibility of future capital gains rate increases the real reason he sold so much Apple stock in the first half? Should you follow Buffett and dump your Apple stock?

Reasons To Buy Apple Stock

The best reason to buy Apple stock is the company’s AI strategy — hinging on a revamped Siri digital assistant — which could motivate more people to upgrade their iPhones.

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; and generate custom emojis and other images,” noted Investor’s Business Daily.

The most significant arguments in favor of owning Apple stock include:

• AI iPhones could give people a reason to upgrade. Some Wall Street analysts think AI capabilities will encourage consumers to upgrade to the iPhone 16 series this fall, IBD reported. The upgrade cycle for AI iPhones will be “stronger for longer,” Evercore ISI analyst Amit Daryanani told IBD because Apple is staggering its rollout of AI features for the iPhone, he added.
• Old iPhones and satellite connectivity could drive iPhone sales. Many iPhone handsets have not been upgraded for more than four years. Some 270 million iPhones — 18% of the worldwide installed base — were last upgraded more than four years ago, noted Wedbush Securities analyst Daniel Ives. Meanwhile, Apple’s plan to add satellite connectivity to its iMessage app this fall “could spur iPhone sales,” LightShed Partners analyst Walter Piecyk told IBD.

Reasons To Sell Apple Stock

A significant reason investors owned Apple in recent years was knowing the iPhone maker was Buffett’s largest holding. Therefore, his decision to sell such a large percentage of his Apple stock — with the possibility he will sell more this year — should give investors a reason to think about what is motivating Buffett.

Meanwhile, Apple faces significant headwinds:

• Apple’s decelerating revenue. Between 2010 and 2020, Apple revenue grew at a 15.5% average annual rate. During the pandemic, Apple enjoyed a surge in revenue — growing at a nearly 20% annual rate in 2021 and 2022. Sadly, between 2022 and March 2024, Apple’s revenue declined almost every quarter. Apple’s revenue broke that pattern — rising 5% in the June-2024 ending quarter, according to Apple.
• Apple’s AI strategy may not add much revenue growth. “Apple Intelligence” does not bring much new to the world of AI chatbots. The iPhone is a 17-year-old product whose revenues fell 10% in the first quarter of 2024, according to the company. Upgrading Siri slightly may not be a good enough reason for users to go out and buy new Apple devices — for that, they will need a generative AI killer app — as the iTunes store was for the iPod, according to a June 2024 Forbes post.
• Apple’s declining iPhone sales in China. In the June-ending quarter, a 14% increase in services revenue offset the 5.7% drop in Apple’s iPhone sales in China. To be sure, as of July 2024, Apple had the biggest smartphone market share in the U.S., with 55.91%, according to Oberlo. However, Apple’s market share in China’s smartphone market had dropped to 14% — putting the iPhone in sixth place in the second quarter of 2024, CNBC noted.
• Apple’s legal woes. On June 24, European Union regulators accused Apple of violating the EU’s Digital Markets Act with its App Store policies, IBD reported. Moreover, Apple faces a lawsuit by the U.S. Department of Justice — which in March charged Apple’s “restrictive iPhone and App Store policies” with violating antitrust laws. In a statement, Apple said it will “vigorously defend against the lawsuit” which the company said is “wrong on the facts and the law,” reported IBD. Analysts expect the lawsuit to create “headline risk” during its two to three year duration.
• Apple has little else to propel its growth. In late February, Apple canceled its autonomous EV project, about which I co-authored a business school case, Apple’s Electric Vehicle, after a decade of work and an estimated $10 billion investment. Investment bank Needham called Apple’s near-term growth outlook “anemic to negative in a recent report” featured by IBD.

Buffett’s reasons for dumping so much Apple could be a simple matter of valuation. When Berkshire began buying, Apple traded for less than 15 times projected earnings — now the iPhone maker trades “around 30 times projected profits in its fiscal year ending in September 2025,” Barron’s reported.

The scale of Buffett’s Q2 Apple selling suggests he may sell more. “I would have thought it would be really far-fetched for him to sell his remaining stake in Apple, but that doesn’t seem really far-fetched anymore,” Edward Jones analyst Jim Shanahan told Bloomberg in reference to Buffett’s Apple stock sales. “I don’t think zero’s out of the question now.”

I am skeptical about whether consumers will find Apple Intelligence sufficiently compelling to spark a wave of iPhone upgrades. If Buffett agrees, he could sell more Apple shares this quarter.