Apple Inc. (AAPL 0.17%) has been a standout performer in the stock market for most of this century, yet recent trends have shown a different story. In stark contrast to the S&P 500, which has climbed nearly 11% this year, Apple’s shares have barely increased by 1%. As the excitement over artificial intelligence (AI) has boosted other tech giants, Apple appears to be lagging behind, struggling with stagnant revenue growth—particularly from its crucial iPhone segment, which is showing signs of market saturation.
Compounding Apple’s challenges, it seems to have lost a significant amount of backing from one of its largest investors. Warren Buffett’s Berkshire Hathaway (BRK.A -2.17%) (BRK.B -1.27%) has reduced its Apple holdings for two consecutive quarters, with over 116 million shares sold in the first quarter of 2024 alone. This reduction decreased Apple’s share of the Berkshire portfolio from over 50% at the end of the previous year to less than 41%.
At Berkshire Hathaway’s annual shareholder meeting, Buffett hinted that the recent sell-off could be partially due to anticipated changes in capital gains taxes, suggesting a strategic decision to capitalize on lower rates. Nevertheless, Buffett’s history of praise for Apple as a business complicates the narrative, leaving investors to wonder about the deeper reasons behind the sale.
The latest financial disclosures may shed some light. Apple reported a 4% decline in revenue year-over-year during the second quarter of fiscal 2024, totaling $90.8 billion. A significant factor in this downturn is the decline in iPhone sales, particularly in critical markets like China. Although Apple’s services sector is growing, it is not compensating for the slowdown in product sales, crucial for the company’s historic growth model.
The lack of substantial innovation in Apple’s product lineup could be causing consumer and investor fatigue. With the anticipated release of the 16th-generation iPhone later this year, there are concerns over whether new models offer enough advancements to spur continued sales growth. Additionally, Apple’s cautious approach to AI investment may place it at a disadvantage compared to competitors like Microsoft and Alphabet, who are aggressively pursuing new AI technologies.
In terms of valuation, Apple’s stock remains pricey with a price-to-earnings ratio of 30, which is high for a company with diminishing revenues. This scenario might pose a risk of a potential pullback, providing a rational basis for shareholders, including Buffett, to reassess their investments in Apple. While the exact reasons for Buffett’s decision remain partially speculative, the combination of market performance, strategic financial maneuvers, and long-term growth concerns presents a compelling case for selling Apple stock at this juncture.
