Could Apple Soon Lose Its Top Position in Warren Buffett's Portfolio?

Globe and Mail

5 days ago

Key Points
Apple has been one of Warren Buffett's largest holdings for years, but the distance between second spot has been shrinking.
Buffett has been unloading Apple stock and it has also been falling in value.
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Warren Buffett has famously referred to iPhone maker Apple (NASDAQ: AAPL) as "probably the best business I know in the world." It's long been one of Buffett's favorite stocks, and it has been a staple in the Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) portfolio for years.
But while it still remains the top holding in the portfolio, it may not stay in that position for much longer. Here's why that could happen and what it might mean for investors.
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Apple is no longer far and away the biggest Buffett holding
It wasn't all that long ago when Apple was easily the largest holding in Berkshire's portfolio, and it wasn't even close. As of the end of 2023, Apple accounted for half of the entire portfolio and was worth more than $174 billion. The next-largest holding was Bank of America, which accounted for just 10% of the portfolio and was worth a little less than $35 billion at the time. The idea of Apple falling in the second spot just didn't look like a conceivable scenario.
However, with Buffett selling Apple stock since then and shares of the tech giant also falling, that has resulted in a much different makeup of Berkshire's portfolio today. Berkshire's position in Apple has been trimmed by two-thirds and was worth nearly $67 billion as of the end of March. While that was still good enough for the top spot and represented 26% of all holdings, the second spot, which belonged to American Express, accounted for 16% of the portfolio and was worth nearly $41 billion.
Today, the gap is even thinner, with Apple's share of the Berkshire portfolio coming in at just under 22% versus nearly 17% for American Express.
Could Apple fall out of Berkshire's portfolio entirely?
Apple has been a beloved Buffett stock for years, but amid fears of a rising capital gains tax rate, the billionaire investor has been drastically reducing his company's position in the tech giant. Even if Buffett doesn't sell any more Apple shares, the stock's falling valuation could lead to it falling to the second-largest holding in the fund in the near future.
Shares of Apple are down 6% over the past 12 months, while American Express has risen by more than 37% over that stretch (returns as of July 7). Investors have been bearish on Apple over the slow rollout of artificial intelligence (AI) features for its latest iPhone. Without a drastic change and a way to convince investors that it's still a good growth stock and the business isn't falling behind its rivals, this downward trend may continue.
In the longer term, I could see Apple even leaving the Berkshire portfolio permanently. Buffett is stepping down as CEO this year, at which point Greg Abel will take over. Under new leadership, there could be greater changes ahead, including potentially exiting the company's position in Apple and opting for stocks that may be better positioned for growth in AI. While that's not a guarantee, it may be a plausible scenario, especially if Apple struggles to show that it can keep up with its key competitors.
Is Apple still worth investing in?
Whether Apple is or isn't in Berkshire's portfolio shouldn't dictate whether you buy the stock or not. It may impact the stock in the short term as Buffett fans may follow suit and sell shares of Apple as well.
Ultimately, however, whether you buy the stock or not should depend on your long-term investing strategy. If you're willing to be patient and invest in a blue chip stock that has phenomenal financials, including annual free cash flow of around $100 billion, then this can be a good investment to put into your portfolio today.
While it may be a volatile road ahead for Apple, with a strong ecosystem of products and ample resources at its disposal, I'm confident the company can be a big player in AI and turn things around -- it's just a matter of how long it may take for that to happen.
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.