Eastern Time, August 3rd$Berkshire Hathaway-A (BRK.A.US)$The announcement of its financial report for the second quarter of 2024 shows that after the company drastically reduced its Apple shares, its cash reserves surged to a record $276.9 billion. It is particularly noteworthy that Berkshire drastically cut its Apple holdings from 0.789 billion shares to about 0.4 billion shares in the second quarter, a drop of nearly 50%. This move not only shocked fans of Apple stocks, but also triggered market speculation about Apple's growth prospects.

According to data compiled by the agency, as of mid-July, Apple expects a price-earnings ratio of about 33x, compared to a wider range$S&P 500 Index (.SPX.US)$The valuation was 11 percentage points higher. This gap was last seen after the COVID-19 pandemic and financial crisis.

Buffett is selling this time$Apple (AAPL.US)$The stock behavior is particularly remarkable because he has long been known for holding stocks steadily. Since the fourth quarter of 2023, Berkshire has reduced its Apple shares several times. Among them, it sold about 1% of its holdings in the fourth quarter of 2023, and reduced its holdings by 13% in the first quarter of 2024.

Market analysts believe that the sharp sell-off in the second quarter, combined with Berkshire's move to simultaneously sell other stocks such as Bank of America and hoard cash, may reflect Buffett's cautious attitude towards economic prospects and a preventative layout for a potential recession in the US environment of high interest rates.

It is worth noting that at Berkshire's annual shareholders' meeting in May of this year, Buffett also hinted at a possible reason to reduce his Apple holdings: Buffett explained that it was mainly for reasonable tax avoidance reasons, because the current federal tax rate is 21%, and it may be raised to 35% or more in the future.

The “Tax Cuts and Jobs Act” benefits introduced by the Trump administration in 2017 will expire at the end of 2025, when the federal tax rate may rise back to 35% or higher from the current 21%. This will have a significant impact on the company's future profitability and price-earnings ratio performance.

On the other hand, market analysis also suggests that Buffett may be raising more cash for his successor. Although Buffett's performance at the May shareholders' meeting was still sharp, it is inevitable that he is almost 94 years old. At this shareholders' meeting, Buffett also raised the issue of his successor and expressed the hope that after he leaves office, he will be able to give his successor more flexibility. If Berkshire's cash is taken up by his own investments in his later years, it may limit the room for his successor to operate.

Wall Street backs Apple! The fiscal quarter showed that the company is still strong

According to media reports, neither Apple nor Berkshire responded to media requests for comment on Buffett's reduction in Apple shares over the weekend.

Integrity Asset Management believes this is only Buffett's risk management strategy, not a concern about Apple's long-term prospects. If there are any concerns about Apple's long-term viability, Buffett will withdraw from the entire position.

Many Wall Street investment institutions are also urging investors to ignore this news as much as possible and not be influenced by market news in their investment decisions and judgments. Currently, there is a great need to remain calm. From a historical perspective, every time an organization reduces Apple holdings on a large scale and causes Apple's stock price to plummet in a panic-like manner, Apple's stock price will inevitably completely recover from the decline and continue to reach record highs.

According to several analysts at Wedbush, Apple is in a major upgrade cycle that will drive revenue growth in 2025 and 2026. While some may interpret this as a sign of lack of confidence, Apple has just handed over a strong quarterly report, and there is an AI-driven supercycle ahead, so we don't think now is the time to quit.

Furthermore, Duan Yongping, a famous investor with the title of “China's Buffett,” said in response to netizens that there are no plans to reduce Apple holdings: “I have no plans to reduce my holdings, unless I'm called away. The main thing is that I don't know what else I can buy after selling it now. And I think in the long run, I can accept the rewards Apple can bring me in the future. Buffett is different; he is a professional investor, and he will have more options.”

Meanwhile, judging from Apple's latest earnings report, its quarterly results that exceeded expectations showed that revenue was still growing, and suggested that new AI features would boost iPhone sales, causing its stock price to rise against the trend. Judging from the results conference call and financial report disclosure, Apple's capital expenditure strategy in the AI field is relatively conservative, far below$Microsoft (MSFT.US)$,$Alphabet-A (GOOGL.US)$,$Meta Platforms (META.US)$Wait for tech giants.

According to FactSet's latest statistics, Microsoft's June quarterly report showed that capital expenditure reached an astonishing 13.87 billion US dollars, a sharp increase of 55% over the previous year; Google's spending increase was as high as an astonishing 91%, reaching 13.19 billion US dollars; Meta capital expenditure increased by about 31%, reaching 8.3 billion US dollars for the quarter ending June. The spending margin among tech giants is relatively small, but also significantly higher than Apple.

Currently, Apple's progressive spending model is likely to win great favor in the market. After all, judging from Q2 Technology's financial data, the prospects for AI monetization are still unreal.

Currently, the market wants technology companies to maintain corporate profit margins when developing AI. Apple's spending on AI infrastructure is increasing quarterly but slowly, and is using the strategy of renting low-cost computing power and self-developed AI chips rather than large-scale purchases$NVIDIA (NVDA.US)$AI GPU. Cook said that Apple uses a hybrid approach to AI capital expenditure, combining internal and external cooperation to ensure effective use of capital expenditure.

Furthermore, judging from Buffett's most popular financial indicator — free cash flow reserves, Apple is extremely powerful, and has also announced the largest $110 billion share repurchase plan in history to boost shareholder returns.

Smart investors!

How do you understand Lao Ba's sale of Apple this time?

edit/ping