One of the biggest stories in the capital markets right now revolves around AppleMore specifically, Warren Buffett’s Berkshire Hathaway has sold a significant portion of its stake in the iPhone maker, according to recent filings.
While this raised a lot of eyebrows in the investment community, I personally wasn’t surprised. And I don’t think Buffett is done yet.
Let’s take a deeper look at Buffett’s recent portfolio management and find out what the Oracle of Omaha might do next.
Buffett continues to reduce his stake in Apple
According to Berkshire’s most recent quarterly report, the company’s stake in Apple was worth $84.2 billion at 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. That said, there were some indications that this was coming.
Earlier this year, Berkshire trimmed its Apple position by about 13%. Buffett explained his reasoning for the move at Berkshire’s annual shareholder meeting, noting that he believed changes in the tax code were coming. Essentially, Buffett wanted to lock in some profits and avoid a higher tax liability if his prediction came to fruition.
While it’s impossible to predict the perfect time to sell a stock, Buffett’s logic makes perfect sense. Now that it’s been revealed that he’s reduced his Apple stake even further, I think there’s a good chance the famed investor will make another move that also revolves around smart tax planning.
He may not be ready yet
Buffett’s portfolio is filled with blue chip, steadily growing companies such as Coca Cola And American ExpressBerkshire rarely invests in high-growth opportunities outside its core positions in its sector.
A few years ago, however, Berkshire made one of the 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) company that specializes in big data analytics. Not only is Snowflake active in the tech sector, which Buffett typically ignores, but at the time of its 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 the filings, Berkshire owns about 6.1 million shares of Snowflake. Given its total investment of $730 million, investors can assume Berkshire’s cost of ownership in Snowflake shares is around $120.
From the chart above, it’s clear that Buffett missed out on some significant gains in Snowflake stock a few years ago. Furthermore, with the stock trading around $116 per share today, Berkshire is now sitting at a loss in its position.
If the chart above is any indication, Snowflake’s price action is quite volatile. While there is a chance the stock can rebound significantly, the trends above indicate that investors have been selling Snowflake stock heavily for a while now — especially in 2024.
While Buffett’s loss on his Snowflake position isn’t that big in the grand scheme of things, I still think there’s a good chance he will exit his position.
Some things to consider
I can’t say for sure why Buffett sold more Apple shares. I suspect he wanted to raise more money due to several factors, including market uncertainty surrounding the upcoming presidential election, further hedging regarding potential tax law changes, and reducing his exposure to an ever-changing artificial intelligence (AI) narrative.
All of these concerns could very well impact stocks like Snowflake as well. Keep in mind that Snowflake’s CEO suddenly left earlier this year, leaving investors stunned. Additionally, unlike many of its SaaS peers, Snowflake has made little progress in the AI ​​space. This dynamic has left many investors disinterested and doubtful about the company’s future — hence the continued selling activity this year.
Given that Buffett has already made some notable changes to his portfolio for tax reasons, I think it might make sense for him to sell his Snowflake shares and reduce his capital gains taxes through a strategy known as “tax loss harvesting.”
Furthermore, I wonder if Buffett has fully bought into the AI ​​narrative, since he is not known as a big investor in technology. I suspect not, and that it probably makes sense to exit Snowflake and return 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 Spinning Off Apple, This Will Be Warren Buffett’s Next Move With Artificial Intelligence (AI) Stocks was originally published by The Motley Fool
