Warren Buffett’s Berkshire Hathaway Sells Significant Apple Stake, Increases Cash Reserves

In a surprising move, Warren Buffett’s Berkshire Hathaway has sold off a substantial portion of its Apple shares and bolstered its cash holdings, raising questions about the company’s outlook on the US economy. The conglomerate’s cash reserves have surged to an impressive $227bn, despite posting a record quarterly operating profit.

During the second quarter, Berkshire offloaded approximately 390m Apple shares, following the sale of 115m shares in the first quarter. This decision comes amidst a 23% rise in Apple’s stock price. Nevertheless, the company still holds around 400m shares, valued at $84.2bn as of 30 June.

The significant increase in Berkshire’s cash stake, which grew from $189bn to $276.9bn in just three months, is largely attributed to the net sale of $75.5bn in stocks. This marks the seventh consecutive quarter in which Berkshire has sold more stocks than it has purchased.

Profits from Berkshire’s numerous businesses saw a 15% increase, reaching $11.6bn, or roughly $8,073 per class A share, compared to $10.04bn the previous year. The insurance businesses, through underwriting and investments, contributed nearly half of this profit. However, net income experienced a 15% decline, falling to $30.34bn from $35.91bn a year earlier, as rising stock prices in both periods inflated the value of Berkshire’s investment portfolio, including its Apple holdings.

Buffett has consistently advised shareholders to disregard Berkshire’s quarterly investment gains and losses, as they often result in disproportionate net profits or losses. The accumulation of cash at Berkshire is typically indicative of the company’s inability to find attractively priced whole businesses or individual stocks to acquire. Moreover, the substantial cash reserves may signal apprehensions about the broader US economy, as many investors consider Berkshire to be a proxy for it.

Recent government data revealing slowing job growth and the highest unemployment rate since October 2021 has led some analysts to anticipate multiple Federal Reserve rate cuts beginning in September. However, such rate cuts would likely lead to a decline in Berkshire’s returns from short-term treasuries.

Berkshire has also reduced its stock buyback activity, repurchasing a mere $345m in the second quarter and none in the first three weeks of July. As Buffett stated during Berkshire’s annual meeting on 4 May, “We’d love to spend it, but we won’t spend it unless we think we’re doing something that has very little risk and can make us a lot of money.”

Despite the recent sell-off, Buffett remains a strong supporter of Apple, citing the iPhone maker’s robust pricing power and loyal customer base. He expects Apple to maintain its position as Berkshire’s largest stock investment, although selling made sense given the likely increase in the 21% federal tax rate on the gains.

Under Buffett’s leadership since 1965, Berkshire has evolved into a conglomerate encompassing dozens of businesses, including Geico car insurance, the BNSF railroad, Berkshire Hathaway Energy, a namesake real estate brokerage, and Dairy Queen. Vice-chair Greg Abel, 62, is widely expected to succeed Buffett as Berkshire’s chief executive in the future.