Last week, Warren Buffett's Berkshire disclosed that the company sold 49.4% of its stake in Apple in the second quarter, and the number of shares held fell sharply from 789 million shares at the end of the first quarter to about 400 million shares at the end of the second quarter.
Warren Buffett's sell-off has also brought some unexpected good news to Apple investors: Apple's influence in major stock indexes will be fully unleashed.
For years, Apple's weighting in a range of benchmark indices has been low, as Warren Buffett's Berkshire Hathaway tends to hold its investments for the long term, making them untradable. Index providers calculate Apple's weights based on a method called the adjusted market value of outstanding shares. As a result, Apple's true weight is not reflected in many indices.
Crazy reduction of apples
Warren Buffett is accelerating the pace of reducing his holdings, according to the financial report disclosed on the evening of August 3, Buffett's Berkshire sold $75.5 billion worth of shares in the second quarter.
According to the financial report, as of the end of the second quarter, Berkshire's stake in Apple was worth $84.2 billion, and the number of shares held was about 400 million. At the end of the first quarter, Berkshire held 789 million shares of Apple. That said, Berkshire sold a massive 389 million shares of Apple in the second quarter. Berkshire currently owns about 2.6 percent of Apple, which is worth about $88 billion based on Friday's closing price of $219.86.
As of June 30, 72% of the total fair value of Berkshire· Hathaway's equity investments were concentrated in five companies: United States Express, Apple, Bank of United States, Chevron and Coca-Cola, with market capitalizations of $35.1 billion, $84.2 billion, $41.1 billion, $18.6 billion and $25.5 billion, respectively.
Berkshire reduced its stake in Apple by 13% in the first quarter and hinted at its annual shareholder meeting in May that it was due to tax considerations. Buffett pointed out that if the United States government raises capital gains taxes to cover the rising fiscal deficit, then the "small sale of apples" this year will bring long-term benefits to Berkshire shareholders.
However, the sharp sell-off in Apple shares in the second quarter may not be just for tax-saving purposes. Berkshire has been Buffett's investment deputy at Ted since 2016 Weschler and Todd Combs started buying Apple shares at the suggestion of the company. Over the years, Buffett's investment in Apple has gradually increased, making it Berkshire's largest holding, and even calling Apple the second largest business after its insurance business. Despite its downweight in the last two quarters, Apple remains Berkshire's largest holding.
A key question now is whether Berkshire will continue to reduce its stake in Apple in the third quarter, and possibly even liquidate it entirely.
On August 1, Apple announced its financial results for the third quarter of fiscal year 2024 (the second quarter of the calendar year). According to the data, Apple achieved revenue of $85.8 billion in the quarter, a year-on-year increase of 5%, exceeding analysts' expectations of $84.5 billion. However, Apple's performance in China was disappointing, with revenue falling 6.5% year-on-year to $14.7 billion, below market expectations of $15.3 billion. Apple attributed the decline mainly to the strength of the dollar, but even excluding the impact of foreign exchange rates, its sales in China fell more than analysts expected, raising concerns about Apple's position in the Chinese market.
Cash reserves set a new record
According to the financial report released on the evening of August 3, Berkshire · Hathaway achieved revenue of $93.653 billion in the second quarter, an increase from $92.503 billion in the same period last year, and exceeded market expectations of $91.09 billion, and a net profit of $30.348 billion in the second quarter, far exceeding market expectations of $17.786 billion, compared with $35.912 billion in the same period last year.
Berkshire's cash reserves reached a record high of $276.9 billion at the end of the second quarter, compared with $189 billion at the end of the first quarter. The main reason for the sharp increase in cash reserves in the second quarter was that Berkshire sold a net $75.5 billion of shares, marking the seventh consecutive quarter that Berkshire sold more shares than bought them.
In the second quarter, profits from Berkshire's companies rose 15 percent year-on-year to $11.6 billion, or about $8,073 per Class A share, compared with $10.04 billion a year earlier. Nearly half of the profits came from the underwriting and investment activities of Berkshire's insurance business.
Some analysts believe that Berkshire's huge cash holdings may reflect Buffett's concern about the overall economic situation in United States. The data showed that job growth in the United States slowed, with unemployment reaching its highest level since October 2021, prompting some analysts to predict that the Fed would cut interest rates multiple times starting in September. Berkshire's return on short-term Treasuries is expected to fall once rate cuts begin.
Overvaluation raises concerns for tech stocks
Warren Buffett began to reduce his holdings in Apple in the first quarter of this year, suggesting at Berkshire's shareholder meeting in May that the move was partly motivated by tax considerations. Buffett pointed out that if the United States government raises capital gains taxes to cover the rising fiscal deficit, then selling Apple shares in moderation this year will benefit Berkshire shareholders.
However, it is clear that the second quarter of the year when it was another significant reduction in Apple's stake was not just for tax saving purposes.
In the first quarter, Apple shares fell 10% on concerns that Apple would lag behind its competitors in AI innovation. However, after ramping up its investment in artificial intelligence in the second quarter and planning to launch a new iPhone app, Apple's stock price began to rebound, rising 23% in the quarter and hitting an all-time high.
It's unclear why Buffett wants to sell the Apple stake that Berkshire first bought eight years ago, perhaps because of considerations for the company's fundamentals, market valuation, or portfolio management (Buffett usually doesn't want a single stake to be too large). However, the high valuations of large technology stocks in the United States have become a common concern in the market.
In the last week of July, the "Tech Seven", which includes Amazon, Nvidia, Microsoft, Apple, Meta, Alphabet and Tesla, wiped off a combined $1.52 trillion in market capitalization, the largest drop in history. Previously, after the earnings reports of Tesla and Google's parent company Alphabet, the United States stock market suffered a massive sell-off, and the outside world began to question the sustainability of the technologies that drove the stock market to record highs, such as artificial intelligence.
Some analysts worry that it will be harder for tech companies to win over investors in the second half of the year, given their exorbitant valuations. In addition, there are already signs that the number of businesses achieving profitable growth is increasing, which some investors see as a positive trend.
