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After big tech bet on Apple, Buffett’s Berkshire refocusses on energy
Even before Berkshire Hathaway’s recent big bet on Apple, the stock comprised the majority of its equity portfolio, and the current tech rally – and Apple’s recent US$3 trillion valuation landmark – would seem to support Warren Buffett’s turn to tech. But observers say there is more to be gleaned from the legendary investor’s holdings.
Berkshire added 20.4 million shares of Apple (ASX: AAPL) in February, bringing its stake to nearly 6 per cent of the tech giant’s outstanding stock. The Buffett-helmed conglomerate now holds 916 million Apple shares, worth about $170 billion – making up about half its share portfolio.
Buffett is famous for being a long-term holder and for buying at a discount, and many saw in the heavy focus on Apple stock evidence of the iPhone maker’s consumer-demand longevity, as well as sustainable support for the tech boom that was already beginning, spurred by optimism around artificial intelligence (AI).
And while Apple’s star is still rising – profits per share are expected to triple by 2024 compared with 2017 – it is still considered significantly overvalued ahead of its closely watched third-quarter 2023 earnings update on August 3.
“Of particular interest will be demand growth across the electronic device manufacturer’s flagship iPhone series, particularly in light of signs that weakness is emerging within the broader economy as far as consumer demand,” says Robert Marfell, brand and content lead at Selfwealth.
“Analysts expect the iconic tech name is likely to report slowing growth across the breadth of its product category, including both iPhones and iPads, which would be the first time in three years that such a slowdown occurred,” he adds. “An unknown quantity for the business could extend to supply chain issues, as well as currency headwinds.”
And, Morningstar technology sector director Brian Colello points out, while AI is embedded in Apple’s products, “it’s unlikely that Apple will mention any new AI models on its earnings call”, limiting its ability to tap into the optimism-driven tech surge.
“Still, we may hear more about the company’s investments to support AI, large language models or its data centres in general,” Colello says. “Ultimately, Apple will need to make healthy in-house research and development investments to leverage AI and keep up with other tech titans.”
Buffett and Berkshire’s other recent moves, meanwhile, may have more insight for investors.
Earlier this month, Berkshire Hathaway Energy agreed to buy a 50 per cent stake in a liquefied natural gas (LNG) facility in the US for $3.3 billion, giving it a 75 per cent position in a limited partnership shared with a Brookfield subsidiary. It and other energy investments are still dwarfed by Berkshire’s tech allocation, but the bet on fossil fuels reflects a conviction about their continued importance on the global stage, despite the drive toward energy transition, analysts say.
For instance, a major 2022 stock purchase also put Chevron among Berkshire’s top five holdings. The investment giant’s other largest holdings – Bank of America, Coca-Cola and American Express – reflect Buffett’s famous preference for long-term positioning.
But he and his longtime investment partner, Charlie Munger, have also defended their large position in Apple because it “just happens to be a better business than any we own”. With its price-to-earnings ratio sitting at around 33, the stock is currently outside Buffett’s historical comfort zone, so the LNG bet may herald the next round of low-cost Berkshire businesses.
