One the biggest storylines throughout the capital markets directly revolves around Apple. More specifically, Warren Buffett’s Berkshire Hathaway sold off a great portion of its stake throughout the iPhone maker based on recent filings.
While this has raised many eyebrows throughout the investment community, I personally wasn’t surprised. Moreover, I feel Buffett is faraway from finished.
Let’s dig into Buffett’s recent portfolio management and explore what the Oracle of Omaha might just do next.
Buffett continues to trim his stake in Apple
Per Berkshire’s newest quarterly report, the company’s stake in Apple was value $84.2 billion as of the highest of the second quarter. By comparison, Buffett’s Apple stake was value about $135 billion at the highest of the first quarter.
While Apple stays a outstanding pillar of Berkshire’s portfolio, it’s interesting to see Buffett reduce his stake by such an enormous amount. With that said, there have been some indications that this was coming.
Earlier this yr Berkshire trimmed its Apple position by about 13%. Buffett explained his rationale for that move during Berkshire’s annual shareholder meeting — citing that he believed changes to the tax code were on the horizon. Essentially, Buffett was attempting to lock in some gains and avoid a greater tax liability should his prediction come to fruition.
While it’s inconceivable to predict the right moment to sell a stock, Buffett’s logic makes total sense. Now that it has been revealed that he’s reduced his Apple stake even further, I feel there’s a excellent possibility the famed investor will make one other move that might also revolve around savvy tax planning.
He might be not finished yet
Buffett’s portfolio is filled with blue chip, regular growth businesses akin to Coca-Cola and American Express. Berkshire rarely invests in high-growth opportunities outside of its core industry positions.
Nevertheless, just a couple of years ago Berkshire made definitely one among its most intriguing moves in recent history.
In 2020, Berkshire invested roughly $730 million throughout the Snowflake (NYSE: SNOW) initial public offering (IPO). Snowflake is a software-as-a-service (SaaS) business specializing in big data analytics. Not only does Snowflake operate throughout the tech sector, which Buffett generally ignores, but on the time of the IPO the company was still burning money. One amongst Buffett’s core investment philosophies is to invest in corporations that generate regular and growing money flow.
In step with filings, Berkshire owns about 6.1 million shares of Snowflake. Given its total investment of $730 million, investors can assume that Berkshire’s cost basis in Snowflake stock is around $120.
Per the chart above, it’s clear that Buffett missed out on some significant gains in Snowflake stock a couple of years ago. Moreover, with the stock trading around $116 per share today, Berkshire is now sitting on a loss in its position.
If the chart above is any indication, Snowflake’s price motion is pretty volatile. Although there’s a probability the stock could rebound significantly, the trends above indicate that investors have been engaging in some heavy selling of Snowflake stock for a while now — particularly throughout 2024.
While Buffett’s loss in his Snowflake position isn’t that big throughout the grand scheme of things, I still think there’s a excellent probability he’ll exit the position.
Some things to take into consideration
I cannot say for certain why Buffett sold more Apple stock. My suspicion is that he’s attempting to stockpile extra money due to a big selection of points, including uncertainty available available in the market since it pertains to the upcoming presidential election, further hedging since it pertains to potential changes to the tax code, and reducing his exposure to an ever-changing artificial intelligence (AI) narrative.
All of those concerns could thoroughly impact stocks like Snowflake, too. Keep in mind that earlier this yr Snowflake’s CEO suddenly departed, leaving investors stunned. Furthermore, unlike a lot of its SaaS peers, Snowflake has made little progress in AI. These dynamics have left many investors unenthused and doubtful regarding the company’s future — hence the continued selling activity throughout this yr.
Given Buffett has already made some splashy changes to his portfolio for tax reasons, I feel it could make sense that he sells his Snowflake stock and reduces his capital gains tax through a method generally generally known as tax loss harvesting.
Moreover, I query if Buffett has fully bought into the AI narrative considering he isn’t known to be much of a technology investor. My hunch is that he isn’t and that it probably makes some sense to get out of Snowflake and switch back to his roots.
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American Express is an promoting partner of The Ascent, a Motley Idiot company. Adam Spatacco has positions in Apple. The Motley Idiot has positions in and recommends Apple, Berkshire Hathaway, and Snowflake. The Motley Idiot has a disclosure policy.
Prediction: After Offloading Apple, This Will Be the Next Move Warren Buffett Makes With Artificial Intelligence (AI) Stocks was originally published by The Motley Idiot