Warren Buffett Surprisingly Cuts Back on Berkshire's Apple Stake

Billionaire Warren Buffett has significantly reduced Berkshire Hathaway's Apple stake, a move that could unsettle the broader stock market. This decision comes at a time when there has been little positive financial news. Just two years ago, Buffett had praised Apple as one of the four giants of his conglomerate's business, alongside Berkshire's insurance, utility, and BNSF railroad businesses.

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Buffett's recent actions have raised eyebrows because he had previously given the impression that he might hold onto Apple indefinitely, similar to his long-term investments in Coca-Cola and American Express. Over the past year, however, he has trimmed his Apple stake and sold off shares in Bank of America and Chinese EV maker BYD while making few new purchases.

Buffett's Cash Reserves and Market Reactions

As a result of these sales, Buffett is now sitting on nearly USD 277 billion in cash, up from a record USD 189 billion just three months earlier. "This could alarm the markets especially given the news from last week," said Edward Jones analyst Jim Shanahan, referring to weak tech earnings, a disappointing jobs report, and uncertainty about future interest rates.

Despite trimming more than 10 per cent of Berkshire's Apple stake in the first three months of this year by selling over 116 million shares, the recent sale disclosed on Saturday was a much larger move. Wedbush tech analyst Dan Ives commented in a research note, "Buffett is a core believer in Apple and we do not view this as a smoke signal for bad news ahead."

Apple's Position in Berkshire's Portfolio

Apple remains the largest investment in Berkshire's portfolio by far, more than double its Bank of America stake. Ives believes that the recent tech sell-off is only a temporary distraction from the industry's long-term growth. Berkshire did not provide an exact count of its Apple shares in Saturday's report but estimated the investment was worth USD 84.2 billion at the end of the second quarter.

At the end of the first quarter, Berkshire's Apple stake was valued at USD 135.4 billion. Shanahan estimates that Berkshire still holds about 400 million Apple shares. CFRA Research analyst Cathy Seifert views the Apple sale as responsible portfolio management because Apple's stock had become such a large portion of Berkshire's holdings.

Berkshire's Financial Performance

Berkshire reported a small drop in its bottom-line earnings due to a decrease in the paper value of its investments. The company earned USD 30.348 billion, or USD 21,122 per Class A share, during the second quarter, down from USD 35.912 billion, or USD 24,775 per A share, a year ago.

Buffett has long advised investors to focus on Berkshire's operating earnings when judging its performance because these figures exclude investment gains and losses which can vary widely from quarter to quarter. By this measure, Berkshire's operating earnings grew more than 15 per cent 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.

Impact on Berkshire's Businesses

Geico led the improvement among Berkshire's businesses while many of its other companies that are more sensitive to the economy reported lacklustre results. The results easily topped the USD 6,530.25 earnings per share that four analysts surveyed by FactSet Research predicted.

Berkshire owns an assortment of insurance businesses along with BNSF railroad and several major utilities. It also has a varied collection of retail and manufacturing businesses including brands like Dairy Queen and See’s Candy.

This strategic shift by Buffett indicates that he may be preparing for an economic downturn. "This is a company girding itself for a weaker economic climate," Seifert said.