One the biggest storylines in the capital markets right now revolves around Apple. More specifically, Warren Buffett’s Berkshire Hathaway sold off a significant portion of its stake in the iPhone maker according to recent filings.
While this has raised many eyebrows in the investment community, I personally wasn’t surprised. Moreover, I think Buffett is far 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 most recent quarterly report, the company’s stake in Apple was worth $84.2 billion as of the end of the second quarter. By comparison, Buffett’s Apple stake was worth about $135 billion at the end of the first quarter.
While Apple remains a prominent pillar of Berkshire’s portfolio, it’s interesting to see Buffett reduce his stake by such a significant amount. With that said, there were some indications that this was coming.
Earlier this year 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 looking to lock in some gains and avoid a higher tax liability should his prediction come to fruition.
While it’s impossible to predict the perfect moment to sell a stock, Buffett’s logic makes total sense. Now that it’s been revealed that he’s reduced his Apple stake even further, I think there’s a good possibility the famed investor will make another move that will also revolve around savvy tax planning.
He may not be finished yet
Buffett’s portfolio is filled with blue chip, steady growth businesses such as Coca-Cola and American Express. Berkshire rarely invests in high-growth opportunities outside of its core industry positions.
However, a few years ago Berkshire made one of its most intriguing moves in recent history.
In 2020, Berkshire invested approximately $730 million in 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 in the tech sector, which Buffett generally ignores, but at the time of the IPO the company was still burning cash. One of Buffett’s core investment philosophies is to invest in companies that generate steady and growing cash flow.
According to 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 action is pretty volatile. Although there’s a chance 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 in the grand scheme of things, I still think there is a good chance he will exit the position.
Some things to consider
I can’t say for certain why Buffett sold more Apple stock. My suspicion is that he is looking to stockpile more cash due to a variety of factors, including uncertainty in the market as it pertains to the upcoming presidential election, further hedging as it relates to potential changes to the tax code, and reducing his exposure to an ever-changing artificial intelligence (AI) narrative.
All of these concerns could very well impact stocks like Snowflake, too. Keep in mind that earlier this year Snowflake’s CEO suddenly departed, leaving investors stunned. Furthermore, unlike many of its SaaS peers, Snowflake has made little progress in AI. These dynamics have left many investors unenthused and doubtful about the company’s future — hence the ongoing selling activity throughout this year.
Given Buffett has already made some splashy changes to his portfolio for tax reasons, I think it could make sense that he sells his Snowflake stock and reduces his capital gains tax through a strategy known as tax loss harvesting.
Moreover, I question 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 turn back to his roots.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Snowflake. The Motley Fool 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 Fool
