Warren Buffett Reduced His Stake in Apple. Should You?

No modern investor is more scrutinized and scrutinized than Warren Buffett. CEO Berkshire Hathaway (BRK.A -2.74%) (BRK.B -2.85%) He’s a legend, so it’s no surprise that the investment community is fascinated by his every move.

One of Buffett’s recent decisions has attracted a lot of attention. Berkshire Hathaway reduced its stake in Apple (AAPL 0.69%) by nearly 50% in the second quarter. That came as a surprise to some investors, since Apple has been one of Buffett’s favorite companies for years. Has the tech giant’s investment thesis changed? Should investors follow Buffett’s example?

He still holds the top spot with a large lead

It’s not entirely clear why Buffett decided to sell Apple stock. We can guess, like many others. Probably partly for tax reasons, an opinion based on Buffett’s answer when asked why the company he runs made such a decision.

Of course, there may be more reasons. For example, Apple is not growing as quickly as it once did and faces a number of challenges, including an antitrust lawsuit from the U.S. Department of Justice. Were these considerations on Buffett’s mind when he and his team made this decision?

No one can say for sure. But we do know that he still thinks Apple is a great stock. Even though he halved his stake in the company in the second quarter alone (after selling some shares in the first quarter), Apple remains Berkshire Hathaway’s largest position. It makes up about 30% of the company’s portfolio.

Apple’s prospects remain bright

Berkshire Hathaway has had a significant stake in Apple since 2016 and has gotten what it paid for and more. Times were different then, when the iPhone was still a major growth engine. Apple’s business has evolved since then. It may no longer be able to generate the financial results and returns it did in the 2010s.

But there are still plenty of reasons to like Apple stock. Let’s consider three of those things.

Eyes on AI

First, consider Apple’s recent forays into artificial intelligence (AI). The company will create a set of clever AI-powered features that will be available to customers who own the iPhone 15 Pro and newer, as well as other devices. This could spark a new renewal cycle from Apple’s incredibly loyal customers—the company has the highest consumer ratings among the most popular smartphone brands, a powerful competitive advantage.

Solid service and sales revenue

Second, Apple’s popularity has allowed it to build a massive ecosystem. The company boasts over 2 billion active devices. From fintech to healthcare, video and music streaming, and more, the company has plenty of opportunities to monetize its billions of active customers.

Apple’s Services business has been growing faster than the rest of its business for years, with Services revenue up 14% year over year to $24.2 billion.

It’s also a more profitable business (compared to selling products). Services gross margin was 74% in the period, compared to 70.5% a year earlier. Apple’s products gross margin was 35.3%, compared to 35.4% in the comparable period of the previous fiscal year.

However, services revenue still pales in comparison to the iPhone (services ranks second in this category). In the most recent period, the third quarter of fiscal 2024 (ended June 29), Apple’s net sales rose 5% year over year to $85.8 billion.

Attractive dividend

Third, there’s Apple’s dividend. While it’s not known as a dividend stock, it has increased its payout by almost 113% over the past decade. Granted, Apple’s projected yield of around 0.45% isn’t impressive. However, the company’s solid underlying business and ability to generate strong cash flow make it a top income stock.

Buffett loves a great dividend stock. Apple is much more than that. It is an innovative technology company with a huge and loyal customer base that generates consistent income and profit.

In my opinion, Apple is still worth investing in, at least for long-term investors.