It’s never a good idea trying to second-guess the Oracle of Omaha. Warren Buffett sold a huge chunk of his Apple (NASDAQ:AAPL) stock last year. It wasn’t the first time he trimmed his position in the tech giant. Back in 2021, he admitted selling was “probably a mistake”. But, amid recent share price weakness, I doubt he will repeat the same line this time.
Patience
Recent soundings from Apple CEO Tim Cook seem to indicate he has taken a leaf out of Buffett’s playbook. In a recent earnings call, he pushed investors to be patient as it attempts to roll out AI features in the iPhone. “Not first, but best” was how he put it in an interview last year.
In an investing landscape measured in quarterly earnings, though, many don’t have much patience. In some respects, he is right. Three years into the generative AI revolution and not one consumer product has emerged, other than ChatGPT, of course. And that’s despite the industry spending hundreds of billions of dollars, and with the might of the media hyping the technology on an almost daily basis.
Future of iPhone
Recently, Jony Ive, the architect instrumental in the design of the iPhone, sold his company to OpenAI for $6.5bn. At the not-for-profit startup, he is working on what has been described as a “screen-free” device. Some reports highlight that mass production could start as early as 2027.
The threat is clearly on Apple’s radar. During the ongoing Google anti-trust trial, one of Apple’s senior executive stated: “You may not need an iPhone 10 years from now, as crazy as that sounds.”
Given the present state of hardware technology and the extremely vague statements that have come from Sam Altman regarding no-screen devices, I’m not willing to give much credence to these remarks. But, of course, that could change in the years ahead.
Apple has a history of not rushing into a new technology, until its full potential is understood. It was a little-known company when General Magic invented the first smartphone. It didn’t invent the music player, either.
Made in America
The biggest short-term risk to the stock is tariffs. Apple has undoubtedly been the biggest beneficiary of outsourcing manufacturing to China. It has certainly been a major contributor in pushing the valuation to $3trn.
Trump’s ambition of seeing the iPhone mass produced in the US is unlikely to ever happen, in my opinion. With consumers being squeezed from all directions these days, I don’t believe they would ever stomach paying up to $3,000 for one.
Tim Cook has already guided to expect $900m in additional costs over the next quarter. A tiny figure, yes, but I can’t see it ending there. Without price increases, the frothy valuation looks unsustainable. As I just said, I’m not sure that consumers will be as obliging as in the past and accept such increases.
As for Buffett, he still holds a significant chunk of Apple stock. But with a trailing price-to-earnings of 32, I’m not sure the risks are fully priced in. Therefore, I won’t be investing.
