According to an article by Gregory Zuckerman for The Wall Street Journal (WSJ), Warren Buffett, known for his cautious investment style, made a surprising pivot in 2016 when Berkshire Hathaway began accumulating shares of Apple Inc. (NASDAQ: AAPL). Historically, Buffett and his partner Charlie Munger had steered clear of tech stocks, with Munger even describing Apple as “un-Berkshirelike” in a 2013 Reuters interview. This deviation from their typical investment philosophy marked a significant turn, especially given Buffett’s earlier skepticism about the tech giant’s stock potential.
Per the WSJ report, Buffett’s initial reluctance was transformed as he began to view Apple more as a consumer goods company with considerable pricing power due to strong brand loyalty. This shift in perception, catalyzed by high customer retention rates and the addictive quality of Apple products, prompted a large-scale investment in the company. Starting with an initial purchase of nearly 10 million shares in 2016, Berkshire Hathaway substantially increased its Apple stake over the next two years, investing approximately $36 billion. By the end of 2018, Apple constituted about a quarter of Berkshire’s investment portfolio, making it one of Buffett’s most significant single investments.
The Wall Street Journal reports that this investment has been immensely profitable for Berkshire, with its Apple stake now valued at about $157 billion, despite recent declines in Apple’s stock price.
Berkshire Hathaway has realized approximately $120 billion in gains, a testament to the extraordinary success of this investment, which outperformed the S&P 500 by a significant margin during the same period.
However, current circumstances have introduced new challenges for Apple, as highlighted by the WSJ. The tech giant faces regulatory scrutiny, slowing growth in China, and increasing competition in the tech industry, particularly in artificial intelligence. These factors contribute to the heightened risk profile of Apple’s stock, which has already seen a 6.79% drop this year.
As Warren Buffett contemplates the future leadership of Berkshire Hathaway, the management of this enormous stake in Apple remains a critical issue. Despite some reduction in their holdings, Berkshire still holds a substantial portion of Apple shares. The decision to maintain such a large investment in Apple reflects Buffett’s confidence in the long-term value of the company, despite its current challenges and the broader tech industry’s dynamic nature.
Yesterday, Apple announced financial results for its fiscal 2024 second quarter (ended March 30, 2024). Apple announced an all-time high revenue of $90.8 billion. According to Apple’s CEO, Tim Cook, this outcome includes a revenue record in the company’s Services segment. The quarter was notably marked by the launch of the Apple Vision Pro, showcasing the extensive possibilities of spatial computing. Looking ahead, Apple anticipates unveiling another major product next week (rumored to be a new iPad Pro), with further excitement building towards the Worldwide Developers Conference scheduled for the following month. Cook emphasized the company’s commitment to excellence in product and service offerings, aligning with Apple’s foundational values.
Apple said its sustained success is reflected in unprecedented levels of customer satisfaction and loyalty, contributing to a record-high active installed base across all product categories and geographic areas. This performance has led to a new earnings per share (EPS) record for the March quarter, as stated by Apple’s CFO, Luca Maestri.
The board has approved an increase in the quarterly dividend for the twelfth consecutive year, now at $0.25 per share, marking a 4 percent increase. This dividend is set to be distributed on May 16, 2024, to shareholders recorded by the close of business on May 13, 2024. Additionally, the board has authorized a substantial new share repurchase program, committing an additional $110 billion to buy back Apple’s common stock. Apple says these decisions underscore the board’s confidence in the continued value and future growth potential of Apple, aiming to further reward its shareholders amidst ongoing financial success.
In pre-market trading, AAPL is currently (as of 11:25 a.m. UTC on May 3) at $183.79, up $10.76 (6.22%). Since hardware sales were disappointing, the only explanation for the pop in the share price is the $110 billion share buyback program.
According to a report by CNBC, “overall sales fell 4% and iPhone sales fell 10% year over year during the quarter, which Apple attributed to a tough comparison versus last year.”
If Apple does not do anything impressive with AI or find a way to increase its sales growth at some point this year, it is possible that Buffett’s patience with Apple will run out.
Featured Image via Pixabay
