Billionaire investor Warren Buffett has significantly reduced Berkshire Hathaway's massive Apple stake, a move that could unsettle the broader stock market, especially in light of recent weak tech earnings and economic uncertainty.
Two years ago, Buffett hailed Apple as one of the four giants of his conglomerate's business, alongside Berkshire's insurance, utility, and BNSF railroad operations. This gave the impression that Buffett might hold onto Apple indefinitely, much like his long-term holdings in Coca-Cola and American Express.
However, Buffett has been gradually trimming his Apple stake over the past year. He has also sold some of his shares in Bank of America and Chinese EV maker BYD, while making few new investments. As a result, Berkshire's cash reserves have soared to nearly USD 277 billion, up from a record USD 189 billion just three months earlier.
"This could alarm the markets, especially given the recent news of weak tech earnings, a disappointing jobs report, and uncertainty about future interest rates," said Edward Jones analyst Jim Shanahan.
Despite his recent sales, Buffett has consistently praised Apple CEO Tim Cook, noting the strong consumer loyalty to iPhones. Although Buffett trimmed more than 10 percent of Berkshire's Apple stake in the first quarter of this year by selling over 116 million shares, the sale disclosed Saturday represents a much larger reduction.
Wedbush tech analyst Dan Ives remains optimistic, stating in a research note, "Buffett is a core believer in Apple, and we do not view this as a signal of bad news ahead." Apple remains the largest investment in Berkshire's portfolio, more than double the size of its Bank of America stake. Ives believes the recent tech sell-off is a temporary distraction from the industry's long-term growth.
Berkshire did not specify the exact number of its remaining Apple shares in Saturday's report but estimated the investment's value at USD 84.2 billion at the end of the second quarter. This is a decrease from USD 135.4 billion at the end of the first quarter, despite Apple's shares soaring over the summer to as high as USD 237.23. Shanahan estimates Berkshire still holds about 400 million Apple shares.
CFRA Research analyst Cathy Seifert views the Apple sale as responsible portfolio management, given the tech giant's substantial portion of Berkshire's holdings. However, she notes that Buffett may be preparing for an economic downturn. "This is a company girding itself for a weaker economic climate," Seifert said.
Berkshire reported a slight decline in its bottom-line earnings due to a drop in the paper value of its investments. The company earned USD 30.348 billion, or USD 21,122 per Class A share, in the second quarter, down from USD 35.912 billion, or USD 24,775 per Class A share, a year ago.
Buffett has long advised investors to focus on Berkshire's operating earnings, which exclude investment gains and losses that can vary widely from quarter to quarter. By this measure, Berkshire's operating earnings grew more than 15 percent to USD 11.598 billion, or USD 8,072.16 per Class A share, from USD 10.043 billion, or USD 6,928.40 per Class A share, a year ago. Geico led the improvement among Berkshire's businesses, while many of its other companies that are more sensitive to the economy reported lackluster results.
The results surpassed the USD 6,530.25 earnings per share predicted by four analysts surveyed by FactSet Research.
Berkshire Hathaway owns a diverse range of businesses, including insurance, BNSF railroad, several major utilities, and a varied collection of retail and manufacturing operations, including Dairy Queen and See's Candy.