Warren Buffett surprises by slashing Berkshire Hathaway's longtime Apple stake in second quarter

OMAHA, Neb. -- Billionaire Warren Buffett slashed Berkshire Hathaway's massive Apple stake in a move that could prove unsettling for the broader stock market — both because the investor is so revered and because there had been little positive financial news lately.

Just two years ago Buffett called the stock one of the four giants of his conglomerate's business alongside Berkshire insurance, utility and BNSF railroad businesses that it owns outright. That gave investors the impression that Buffett might hold onto Apple indefinitely as he has with the Coca-Cola and American Express shares he bought decades ago.

However, he has trimmed the Apple stake over the past year and has recently also sold off some of his stock in Bank of America and Chinese EV maker BYD while doing very little buying.

As a result, Buffett is now sitting on nearly $277 billion in cash, up from what was already a record $189 billion just three months earlier.

“This could could alarm the markets especially given the news from last week” with weak tech earnings, a disappointing jobs report and uncertainty about the future of interest rates, Edward Jones analyst Jim Shanahan said.

Buffett has consistently lavished praise on Apple CEO Tim Cook, who attended Berkshire's annual meeting in Omaha in May, and talked about the way consumers are feverishly devoted to their iPhones and don't like to switch. He did trim more than 10% of Berkshire's Apple stake in the first three months of this year when he sold off more than 116 million shares, but the sale disclosed Saturday was a much bigger move.

Wedbush tech analyst Dan Ives said in a research note that he thinks “Buffett is a core believer in Apple and we do not view this as a smoke signal for bad news ahead.” Apple remains the largest investment in Berkshire's portfolio by far — more than double its Bank of America stake.

Ives said he thinks the recent tech sell-off is only a temporary distraction from the industry's long-term boom.

Berkshire didn’t give an exact count of its Apple shares in Saturday’s report, but it estimated the investment was worth $84.2 billion at the end of the second quarter even though shares soared over the summer as high as $237.23. At the end of the first quarter, Berkshire’s Apple stake was worth $135.4 billion.

Shanahan estimates that Berkshire still holds about 400 million Apple shares.

Still, while CFRA Research analyst Cathy Seifert said she looks at the Apple sale more as responsible portfolio management because the tech giant had become such a large portion of Berkshire's holdings, it does look like Buffett may be preparing for a downturn.

“This is a company girding itself for a weaker economic climate,” Seifert said.

Berkshire reported a small drop in its bottom-line earnings because of a drop in the paper value of its investments. The company said it earned $30.348 billion, or $21,122 per Class A share, during the second quarter. That’s down from $35.912 billion, or $24,775 per A share, a year ago.

Buffett has long cautioned investors that it's better to look at Berkshire's operating earnings when judging its performance because those figures exclude investment gains and losses which can vary widely from quarter to quarter.

By that measure, Berkshire's operating earnings grew more than 15% to $11.598 billion, or $8,072.16 per Class A share, from $10.043 billion, or $6,928.40 per Class A share, a year ago. Geico led the improvement of Berkshire's businesses while many of its other companies that are more sensitive to the economy reported lackluster results.

The results easily topped the $6,530.25 earnings per share that four analysts surveyed by FactSet Research predicted.

Berkshire owns an assortment of insurance businesses along with BNSF railroad, several major utilities and a varied collection of retail and manufacturing businesses, including brands like Dairy Queen and See's Candy.