One of the biggest stories in the capital markets right now is about Apple. More specifically, Warren Buffett's Berkshire Hathaway has sold a significant portion of its shares in the iPhone maker, according to a recent filing.
This has caused a lot of consternation in the investment community, but it didn't surprise me personally, and I don't think Buffett's plan is over yet.
Let's take a closer look at Buffett's recent portfolio management and find out what the Oracle of Omaha will do next.
Buffett continues to reduce his Apple stake
Berkshire's Apple stake was worth $84.2 billion at the end of the second quarter, according to the company's most recent quarterly report. By comparison, Buffett's Apple stake was worth about $135 billion at the end of the first quarter.
While Apple remains a key pillar of Berkshire's portfolio, it's interesting to see Buffett reduce his holdings so dramatically, although there were some signs that the move was coming.
Earlier this year, Berkshire reduced its stake in Apple by about 13%. At Berkshire's annual shareholder meeting, Buffett explained the move by citing his belief that tax reform was on the horizon. He was essentially looking to lock in profits and avoid a higher tax burden if his prediction came true.
While it's impossible to predict the best time to sell stocks, Buffett's logic makes perfect sense, and now that it's clear he's further reduced his Apple stake, it's entirely possible the famous investor will make another move centered around smart tax planning.
Image source: Getty Images.
He may not be done yet
Buffett's portfolio is full of consistently growing, blue-chip companies, including Coca-Cola and American Express, and Berkshire rarely invests in high-growth opportunities outside its core industries.
But a few years ago, Berkshire made one of its most interesting moves in recent history.
In 2020, Berkshire invested approximately $730 million in the initial public offering (IPO) of Snowflake (NYSE: SNOW), a software-as-a-service company focused on big data analytics. Not only does Snowflake operate in a technology sector that Buffett typically ignores, but it was still cash-starved at the time of its IPO. A core part of Buffett's investment philosophy is to invest in companies that generate stable and growing cash flows.
Berkshire owns about 6.1 million shares of Snowflake, according to the filing. Given its total investment of $730 million, investors can assume Berkshire's cost of Snowflake is about $120 million.
The story continues
SNOW Chart
Looking at the chart above, it's clear that Buffett missed out on some big gains on Snowflake stock a few years ago, and with the stock now trading at $116 per share, Berkshire is now sitting on a loss.
As the chart above shows, Snowflake's price movements have been quite volatile. While the stock could make a significant recovery, the trends above suggest that investors have been selling Snowflake shares in large quantities for some time now, and particularly through 2024.
While Buffett's losses on Snowflake shares aren't that significant in the grand scheme of things, I still think there's a good chance he'll exit the position.
Things to consider
It's unclear why Buffett sold more of his Apple shares. My guess is that he's trying to accumulate more cash due to a variety of factors, including market uncertainty around the upcoming presidential election, further hedging around possible tax changes, and reducing exposure to the ever-changing artificial intelligence (AI) saga.
All of these concerns could also impact a stock like Snowflake. Keep in mind that earlier this year, Snowflake's CEO suddenly stepped down, surprising investors. Additionally, unlike many other SaaS companies, Snowflake has made little progress in the AI space. These developments have caused many investors to lose enthusiasm and become skeptical about the company's future, which is why it has been selling off throughout the year.
Given that Buffett has already made some splashy changes to his portfolio to avoid taxes, it would make sense for him to sell his Snowflake shares and reduce his capital gains taxes through a strategy called tax-loss harvesting.
Moreover, given that Buffett is not well known as a technology investor, I doubt he has fully embraced the AI story. My intuition is that he hasn't, so it would probably make sense for him to exit Snowflake and go back to basics.
Should I invest $1,000 in Snowflake right now?
Before you buy Snowflake shares, consider the following:
The analyst team at Motley Fool Stock Advisor just identified the 10 best stocks for investors to buy right now, and Snowflake isn't on the list. The 10 stocks selected have the potential to generate big gains over the next few years.
Consider the date when Nvidia made this list: April 15, 2005… If you had invested $1,000 at the time of recommendation, you would have made $641,864!*
Stock Advisor gives investors an easy-to-follow blueprint for success, with portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock Advisor service has more than quadrupled S&P 500 returns since 2002*.
View 10 stocks »
*Stock Advisor returns as of August 6, 2024
American Express is an advertising partner of The Ascent, a Motley Fool property. Adam Spatacco is an investor in Apple. The Motley Fool invests in and recommends Apple, Berkshire Hathaway and Snowflake. The Motley Fool has a disclosure policy.
Prediction: After Warren Buffett sells his Apple shares, here's what he'll do next in artificial intelligence (AI) stocks. This article was originally published by The Motley Fool.
