After Dumping Apple, This Will Be Warren Buffett’s Next Move With Artificial Intelligence (AI) Stocks

One of the biggest stories in the capital markets is spinning right now Apple. More specifically, Warren Buffett’s Berkshire Hathaway has sold a significant portion of its stake in the iPhone maker, according to recent filings.

While this raised many eyebrows in the investment community, I personally wasn’t surprised. Moreover, I think Buffett is far from done.

Let’s dig into Buffett’s recent portfolio management and explore what the Oracle of Omaha might do next.

Buffett continues to reduce his stake in Apple

According to Berkshire’s most recent quarterly report, the company’s stake in Apple was worth $84.2 billion at the end of the second quarter. By comparison, Buffett’s stake in Apple was worth about $135 billion at the end of the first quarter.

While Apple remains a prominent pillar of Berkshire’s portfolio, it’s interesting to see Buffett reduce his stake by such a significant amount. That said, there were some hints that this was coming.

Earlier this year, Berkshire cut its Apple position by about 13%. Buffett explained his rationale for the move during Berkshire’s annual shareholder meeting — noting that he believes changes to the tax code are on the horizon. Essentially, Buffett was looking to make some gains and avoid a larger tax liability if his prediction came true.

While it’s impossible to predict the perfect time to sell a stock, Buffett’s logic makes total sense. Now that it has been revealed that he has further reduced his stake in Apple, I think there is a good possibility that the renowned investor will make another move that will also revolve around smart tax planning.

You may not be done yet

Buffett’s portfolio is full of steady growth businesses such as Coca cola and American Express. Berkshire rarely invests in high-growth opportunities outside of its core industry positions.

However, a few years ago, Berkshire made one of the most interesting moves in recent history.

In 2020, Berkshire invested approximately $730 million in Snowflake (NYSE: SNOW) initial public offering (IPO). Snowflake is a software-as-a-service (SaaS) business specializing in big data analytics. Not only does Snowflake operate in the technology sector, which Buffett generally ignores, but at the time of the IPO, the company was still burning through cash. One of Buffett’s core investment philosophies is to invest in companies that generate steady and growing cash flow.

Berkshire owns about 6.1 million shares of Snowflake, according to filings. Given the total investment of $730 million, investors can assume that Berkshire’s cost basis in Snowflake stock is about $120.

The story continues

According to the chart above, it’s clear that Buffett missed out on some significant gains in Snowflake stock a few years ago. Moreover, with the stock trading around $116 per share today, Berkshire now has a loss on its position.

If the chart above is any indication, Snowflake’s price action is quite volatile. While there’s a chance for the stock to bounce back significantly, the trends above indicate that investors have been engaging in heavy selling of Snowflake stock for some time — particularly through 2024.

While Buffett’s loss in Snowflake isn’t that big in the grand scheme of things, I still think there’s a good chance he’ll exit the position.

A few things to consider

I can’t say for sure why Buffett sold more Apple stock. My guess is that he’s looking to hoard more cash due to a variety of factors, including market uncertainty surrounding the upcoming presidential election, additional coverage regarding potential changes to the tax code, and reducing his exposure to an intelligence narrative ever-changing artificial intelligence (AI).

All of these concerns could very well affect stocks like Snowflake as well. Note that earlier this year, Snowflake’s CEO abruptly left, leaving investors stunned. Additionally, unlike many of its SaaS peers, Snowflake has made little progress in AI. That dynamic has left many investors unenthusiastic and doubtful about the company’s future — hence the continuing selling activity throughout this year.

Given that Buffett has already made some nasty changes to his portfolio for tax reasons, I think it might make sense for him to sell his Snowflake shares and reduce his capital gains tax through a strategy known as collection of fiscal losses.

Furthermore, I wonder if Buffett has fully bought into the AI ​​narrative, given that he is not known to be a technology investor. My guess is that it isn’t, and that it probably makes sense to get out of Snowflake and go back to its roots.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco holds positions in Apple. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway and Snowflake. The Motley Fool has a disclosure policy.

Prediction: After Dumping Apple, This Will Be Warren Buffett’s Next Move With Artificial Intelligence (AI) Stocks was originally published by The Motley Fool