News that Warren Buffett of Berkshire Hathaway (NYSE:BRK.B)(NYSE:BRK-A) his stake in Apple (NASDAQ:AAPL) sent shares down 4% on August 5. However, does the Oracle of Omaha bowing out mean that Apple stock is a bad buy?
Reports that , however, were somewhat exaggerated. First, the fall in Apple was not much worse than the 3.6% fall in the NASDAQ average.
Second, Buffett still has more than half his Apple stake.
What’s clear is that Apple is not immune to market forces. However, is that a problem or is it an opportunity? That depends on your time horizon.
Apple Troubles
Over the short term, Apple could go lower.
The possibility of a recession, and falling global markets, should lead speculators to sell safe assets to raise cash. Apple is the very definition of safety, still up 13% for 2024, and up 318% over the last five years. The dividend yields just .5% to current investors, but if you bought a few years ago your yield is higher.
There are always things worth worrying about. Sales of the iPhone year-over-year in Apple’s recent quarterly report. China revenues were $500 million below analysts’ estimates, and $1 billion below those of a year ago.
An iPad that can fold is . The Apple Watch is . CEO Tim Cook the Vision Pro headset during the recent earnings call. Apple Music’s . The whole streaming market may have peaked.
Should investors pay 32 times earnings for Apple stock, given that the NASDAQ’s average PE is Should the NASDAQ PE even be that high, and what would that mean for Apple stock?
If you need reasons to sell, you have them.
Apple Strengths
Over the next few years, however, Apple looks solid.
The bullish view is based on services, especially Apple Intelligence. They grew last quarter while product sales declined. The margin on services is 26%.
Apple Intelligence lets Siri become a primary interface unifying all Apple products. Since it’s not built around a Large Language Model (LLM), but data that’s already in hand, it’s not adding to capital expenditures, or capex. CapEx was just during the last quarter, against nearly for rival Microsoft (NASDAQ:MSFT).
Apple can afford to wait. It’s putting , meaning users can get LLMs without Apple having to pay for it.
It’s true that, until now, Apple Services revenue has been defined by , like payments from Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) for search traffic. (If Google must cut out the payments, in reaction to , expect Apple stock to take a hit as it adjusts.)
What matters is that Apple profits from services are already approaching those from product sales. Apple Intelligence should push them over the top.
Early reviews on Apple Intelligence, like its proofreading, seem to . The changes to Siri so far , but most won’t be available until next year.
My guess is Apple customers are willing to wait for it. That means a long runway of growth is coming.
The Bottom Line
Buffett may have been timing the market, getting long cash in case of trouble. If so, he was right again, because trouble just came.
Buffett could also be raising cash to make a big move into another industry. The electric utility industry is still fragmented, disorganized, and . Putting cash to work there would be welcome.
But you evaluate an investment on what you want and need as an investor, not what someone else is doing. Apple is down just 6% over the last month, barely a correction in a NASDAQ market that’s down 11%.
Smart investors buy on weakness and look at the long term. That makes Apple a buy.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
As of this writing, Dana Blankenhorn had a LONG position in MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
has been a financial and technology journalist since 1978. He is the author of , available at the Amazon Kindle store. Write him at , tweet him at , or subscribe to his .
