Warren Buffett Reduced His Stake in Apple. What About You?

No contemporary investor is more studied and scrutinized than Warren Buffett. The CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) is a legend, so the investment community’s fascination with his every move is no surprise.

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

Still the best holder by a big margin

It’s unclear exactly why Buffett decided to sell Apple stock. We can make educated guesses, as many have. It’s likely that it was partly for tax reasons, an opinion based on Buffett’s response to a question about why the company he runs made this decision.

There could, of course, be other reasons. For example, Apple is no longer growing as it once did, and it faces several 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 compelling stock. Even though he cut his stake in the company in half in the second quarter alone (after also selling some shares in the first quarter), Apple remains Berkshire Hathaway’s largest holding, accounting for about 30% of the company’s portfolio.

Apple’s outlook remains bright

Berkshire Hathaway has held a significant stake in Apple since 2016 and has gotten a lot of bang for its buck. Times were different back then, when the iPhone was still a major growth driver. Apple’s business has evolved since then. It may no longer be able to generate the kinds of financial results and returns it generated in the 2010s.

There are, however, many positives to Apple’s stock. Let’s look at three of them.

Eyes on AI

First, consider Apple’s recent moves into artificial intelligence (AI). The company will create a suite of nifty AI-powered features that will be available to customers who own the iPhone 15 Pro and newer models, among other devices. This could kick off a new round of renewals from Apple’s incredibly loyal customers—Apple has the highest customer ratings of any popular smartphone brand, which is a powerful competitive advantage.

Strong services and turnover

Second, Apple’s popularity has allowed it to build a vast ecosystem. The company has 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.

For years, Apple’s services segment has been growing faster than the rest of its business. Services revenue rose 14% from the previous year to $24.2 billion.

It is also the most profitable business (relative to product sales). Services gross margin was 74% in the period, compared to 70.5% a year earlier. Apple’s gross margin in its product segment was 35.3%, compared to 35.4% in the comparable period last year.

Still, services revenue remains small compared to the iPhone (services is the second-largest in this category). In the most recent period, the third quarter of its fiscal 2024 (ending June 29), Apple’s net sales rose 5% from a year earlier to $85.8 billion.

Attractive dividend

Third, there’s Apple’s dividend. While the company isn’t known as a dividend stock, it has increased its payout by nearly 113% over the past decade. Granted, Apple’s forward yield of about 0.45% isn’t impressive. But the strength of the company’s underlying business and its ability to generate significant cash flow make it a high-yield stock.

Buffett loves high dividend stocks. Apple is much more than that. It is an innovative technology company with a huge and loyal customer base that generates steady revenue and profits.

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

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.