One of the biggest storylines in the capital markets today is around Apple. More specifically, Warren Buffett Berkshire Hathaway sold a significant part of the shares in the iPhone maker according to new filings.
While this has raised many eyebrows in the investment community, I personally am not surprised. Moreover, I Buffett is far from finished.
Come take a look at Buffett’s new portfolio management and explore what the Oracle of Omaha will do next.
Buffett continues to cut his stake in Apple
According to Berkshire’s latest 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 is interesting to see Buffett reduce his stake by a significant amount. With that said, there are some indications that this is coming.
Earlier this year, Berkshire reduced its Apple position by about 13%. Buffett explained his reasoning for the move during Berkshire’s annual shareholder meeting — stating that he believes changes to the tax code are on the horizon. In essence, Buffett wants to lock in some gains and avoid higher tax liability if his predictions come true.
While it’s impossible to predict the perfect time to sell a stock, Buffett’s logic makes a lot of sense. Now it has been revealed that Apple’s stock has decreased even more, I think there is a good possibility that famous investors will make another move that will also revolve around smart tax planning.
He may not have 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 the most exciting moves in recent history.
In 2020, Berkshire invested approximately $730 million in Snowflakes (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 largely 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 stable cash flow and continue to grow.
According to the filing, Berkshire owns about 6.1 million Snowflake shares. Given the total investment of $730 million, investors can assume that Berkshire’s cost basis in Snowflake shares is about $120.
According to the chart above, Buffett has missed out on some significant gains in Snowflake stock over the past few years. Additionally, with the stock trading around $116 per share today, Berkshire is currently losing ground.
If the chart above is any indication, Snowflake’s price action is fairly stable. Although there is a possibility that the stock could rebound, the trend above suggests that investors have been selling Snowflake shares for some time – especially in 2024.
While Buffett’s loss of the Snowflake position isn’t that big in the grand scheme of things, I still think there’s a chance he’ll exit the position.
Some things to consider
I can not say for certain why Buffett sold more Apple shares. My guess is that they want to keep more money due to a variety of factors, including uncertainty in the market as it relates to the upcoming presidential election, more hedging as it relates to potential changes in the tax code, and reduced exposure to the narrative Artificial Intelligence (AI) is always changing.
All of these concerns are likely to affect stocks like Snowflake. Remember that earlier this year Snowflake’s CEO suddenly left, surprising investors. Furthermore, unlike many of its SaaS peers, Snowflake has made little progress in AI. These dynamics have left many investors unhappy and skeptical about the company’s future – so selling activity has continued this year.
Given Buffett has made some splashy changes to the portfolio for tax reasons, I think it can make sense to sell Snowflake stocks and reduce the capital gains tax through a strategy known as tax loss harvest.
Additionally, I question whether Buffett has fully bought into the AI ​​narrative since he is not known as a tech investor. My hunch is not and that probably makes some sense to get out of Snowflake and go back to the roots.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has a position at Apple. The Motley Fool has positions and recommends Apple, Berkshire Hathaway, and Snowflake. The Motley Fool has a disclosure policy.
Prediction: After Dumping Apple, This Will Be Warren Buffett’s Next Step With Artificial Intelligence (AI) Stocks published by The Motley Fool
