Berkshire's Big Bet on Apple May Face Challenges in 2024

Warren Buffett's Berkshire Hathaway has made a big bet on Apple Inc., with the tech giant comprising a whopping 48% of its portfolio, valued at nearly $180 billion. Buffett, known for his aversion to diversification when confident in his picks, may encounter challenges in 2024 as Apple’s stock becomes increasingly pricey.

Rise in Apple's Share Price and Valuation

In early 2016, Berkshire Hathaway seized the opportunity to buy Apple shares during a period of lower confidence from investors. The purchase was driven by Apple's then-underprized stock value, strong brand, and technological innovations. Since Berkshire's initial investment, Apple’s valuation has soared, a testament to the company's growth and the market's heightened willingness to pay a premium for its shares.

Concerns Over Apple's Current Growth Trajectory

Despite Apple's impressive history, there are signs of concern regarding its future growth. The pace of innovation has seen a slight decline, making new models less appealing for upgrades. Inflation also poses a threat, diminishing the purchasing power of consumers and affecting iPhone sales. Data from fiscal year 2023 showed both declines and modest gains in iPhone sales growth year over year, indicating potential stagnation.

Apple’s near-term fortunes could hinge on its fiscal 2024 first-quarter results, typically released in early February, which include sales during the crucial holiday period. Adding to Apple's woes is a recent patent infringement issue with Masimo affecting sales of the recent Apple Watch models.

Wall Street analysts hold a subdued outlook for Apple, projecting revenue growth rates of 3.5% and 5.6% for fiscal years 2024 and 2025, respectively. Earnings per share growth estimates are slightly higher but still below market-average expectations. The stock currently trades at a premium, as though it’s a leading growth stock, causing dissonance with the moderated growth projections.

This dissonance between growth projections and stock valuation raises concerns about the stock's performance and, as a result, its significant presence within Berkshire Hathaway's portfolio. The massive stake in Apple means that any attempt by Berkshire to reduce its position could have far-reaching market implications, trapping the investment behemoth in its large holding.

Berkshire, Apple, Stocks