Warren Buffett sold Apple shares, but these billionaires are buying them by the boatload

Warren Buffett is considered by many to be one of the greatest investors of all time. The longevity of his success is remarkable, starting as a public investor in the 1950s after establishing his own investment partnership. As President and CEO of Berkshire Hathaway (BRK.A 1.85%) (BRK.B 1.61%)Buffett is responsible for managing most of the conglomerate’s equity portfolio. And he has done so with incredible results since he took over the company in 1965.

Buffett typically holds his stock positions for a long time, so he can create quite a stir when he starts selling a stock, especially one of Berkshire’s biggest holdings. Buffett did just that when he started selling Apple (AAPL -0.34%) shares in the fourth quarter of 2023. But he really made headlines when he sold nearly half of his remaining Berkshire stake last quarter.

Buffett’s reason for selling centers on the favorable tax laws that US corporations currently enjoy. Taxes are expected to increase in the future. Since Berkshire has a substantial capital gain from its investment in Apple, it decided to take some money off the table and pay taxes now instead of waiting until later.

Meanwhile, his fellow billionaires think there’s a lot to like about Apple stock. Total shares held by institutional investors filing Form 13F with the SEC fell by just 3 million, despite Buffett’s sales of 389 million shares last quarter. Here are some of the biggest buyers and what they might see in the world’s most valuable company.

Image source: Getty Images.

These billionaires are buying what Buffett is selling

The following billionaires held or increased positions in Apple, according to their quarterly filings with the SEC.

• Israel Englander bought 5.16 million shares for Millenium Management’s $216 billion portfolio, increasing the fund’s stake in the stock by 68%.
• Ken Griffin added 2.64 million shares to Citadel Advisor’s $494 billion portfolio, increasing his stock position by 93%. It also established positions in several Apple-focused leveraged ETFs.
• Dan Loeb established a new position in Apple for the $8.7 billion portfolio of Third Point LLC, buying 1.95 million shares of the stock.
• Steve Cohen established a new position in Apple stock for Point72’s $38 billion portfolio, adding 1.57 million shares. It also significantly reduced the fund’s put options, typically a bear position.
• Brad Gerstner established a new position in Apple for Altimeter Capital, buying 271,370 shares for the $6.7 billion portfolio.

While these five prominent billionaire purchases don’t even come close to matching Buffett’s selloff last quarter, they show that not all investment managers are bearish on Apple. Even Buffett himself remains bullish on Apple, a company he called “a better business than any of us” at Berkshire Hathaway’s 2023 shareholder meeting. He said he expects Apple to remain Berkshire’s largest equity holding for the foreseeable future. The stock remains close to 30% of the conglomerate’s portfolio.

There are plenty of good reasons why these billionaires were smart to scoop up Apple stock in the second quarter while Buffett was selling.

Here’s why billionaires still buy Apple

Apple’s business centers around its ecosystem of products and services, which together serve to lock customers into buying their next device from Apple. The iPhone is the core of the business, and sales have remained relatively flat over the past few years.

Still, next year could see strong revenue growth driven by new AI features Apple introduced in June. Only newer devices are capable of running Apple’s AI services, which could prompt a lot of people carrying older iPhones to upgrade this fall. As Apple expands its AI features globally, the strong upgrade rate could extend through 2026.

The interest in Apple’s new AI features underscores the current growth engine of Apple’s business: its services. Apple’s services generated $93 billion in revenue over the past 12 months, up 14 percent year-over-year in the last quarter. Services have an extremely high gross margin (74%), so as they become a larger part of Apple’s total revenue, the company’s bottom line grows even faster.

The rise of AI opens up many opportunities for Apple as a consumer platform. Just as it has been able to capitalize on the ecosystem of apps and other services on the iPhone and its other products, it could see many more opportunities as AI services grow much more over the next few years. Apple just laid the groundwork for how it expects AI services to work on the iPhone, and it looks ready to build on top of that.

Apple currently trades at a forward price-to-earnings (P/E) ratio of around 30, having climbed higher in June and July following its AI announcements. Even at today’s price, the stock looks attractive given the company’s cash position and strong free cash flow. Apple is using both to buy back shares at a record pace, announcing a record $110 billion share buyback program in May. This, combined with its growth catalysts for the next few years, should support very strong earnings per share growth, justifying the premium price.

Billionaires certainly see value in the stock. And given that it’s still by far Berkshire Hathaway’s largest stock holding, it’s safe to say that Warren Buffett thinks the stock is still worth owning.