Warren Buffett has reduced his stake in Apple. Should I?

No contemporary investor is more studied and analyzed than Warren Buffett. The executive director of Berkshire Hathaway (BRK.A -2.74%) (BRK.B -2.85%) he’s a legend, so the investment community’s fascination with his every move is not surprising.

One of Buffett’s recent decisions has attracted quite a bit of attention. Berkshire Hathaway reduced its stake Apple (AAPL 0.69%) by almost 50% in the second quarter. It came as little surprise to some investors, as Apple has been one of Buffett’s favorite companies for years. Has the tech giant’s investment thesis changed? Should investors follow Buffett’s lead?

The top still holds by a wide margin

It is not clear why Buffett decided to sell Apple shares. We can make educated guesses, as many have. It’s likely partly for tax reasons, an opinion based on Buffett’s response to a question about why the company he runs made the move.

There could be more reasons, of course. For example, Apple is not growing as fast as it once did and is facing several challenges, including an antitrust lawsuit from the US Department of Justice. Were these considerations in Buffett’s mind when he and his team made this decision?

No one can say for sure. But we know he still thinks Apple is a great stock. Even though he halved his stake in his company in the second quarter alone (after also selling some shares in the first quarter), Apple remains Berkshire Hathaway’s main holding. It represents approximately 30% of the company’s portfolio.

Apple’s outlook remains bright

Berkshire Hathaway has owned a significant stake in Apple since 2016 and has made its money and then some. Times were different back then, when the iPhone was still a major growth driver. Apple’s business has evolved since then. It may no longer be able to generate the kinds of financial results and returns it did in the 2010s.

However, there’s still a lot to like about Apple stock. Let us consider three of these things.

Eyes on AI

First, consider Apple’s recent projects in artificial intelligence (AI). The company will make a suite of smart AI-based features that will be available to customers who own the iPhone 15 Pro and later, among other devices. That could trigger a new cycle of renewals from Apple’s incredibly loyal customers — it has the highest consumer ratings among the most popular smartphone brands, a strong competitive advantage.

Solid service and sales revenue

Second, Apple’s popularity has allowed it to build a vast ecosystem. The company has over 2 billion active devices. From fintech to healthcare, video and music streaming and more, the company has many opportunities to monetize its billions of active customers.

Apple’s services segment has grown faster than the rest of its business for years. Services revenue rose 14% year-over-year to $24.2 billion.

It is also the more profitable business (compared to product sales). Services gross margin was 74% in the period, up from 70.5% a year earlier. Apple’s gross margin in its product segment was 35.3%, compared to 35.4% in the comparable period of the previous fiscal year.

However, revenue from services still pales in comparison to the iPhone (services are second in this category). In the most recent period, the third quarter of fiscal 2024 (ended June 29), Apple’s net sales rose 5% year over year to $85.8 billion.

Attractive dividend

Third, there’s the Apple dividend. Although not known as a dividend stock, it has grown its payout by nearly 113% over the past decade. True, Apple’s forward yield of around 0.45% is not impressive. But the company’s solid core business and ability to generate strong cash flow make it a top-earning stock.

Buffett loves high dividend stocks. Apple is much more than that. It is an innovative technology company with a huge and loyal customer base that generates steady revenue and profit.

In my opinion, Apple is still worth investing in, at least for those investors with a long-term mindset.