Warren Buffett has stopped trimming his Apple(NASDAQ: AAPL) position. The billionaire from Omaha kept his largest position for Berkshire Hathaway unchanged in the fourth quarter after dumping most of his ownership in the first three quarters of 2024. Apple remains Berkshire Hathaway's largest equity investment, worth $75 billion as of this writing.
Buffett is giving the signal to the market that he intends to keep his ownership position in Apple, just at a reduced size, indicating that he is bullish on the stock's future. Does that mean you should keep holding on to your Apple shares? Or is now a good time to dump the megacap stock and buy something else?
Let's take a closer look at this technology giant and find out.
Return to revenue growth
Apple is one of the largest businesses in the world, generating $396 billion in revenue over the last 12 months. However, in the years after the 2021 boom in technology hardware spending, the iPhone maker saw stagnating and even declining revenue.
That has changed in the last few quarters. Revenue grew 4% year over year last quarter to $124.3 billion, with operating margin hitting a record 32% over the last 12 months. The company is seeing strong growth from its software services division, which has high margins and will help it gain operating leverage. Services revenue was over $26 billion last quarter compared to $23 billion in the year prior.
With a consistent share repurchase program, Apple has been able to return a ton of capital to shareholders in the last few years, which has helped it propel dividend payments much higher. Dividend per share is up 110% in the last 10 years, although the current dividend yield sits at just 0.42%. Apple's hardware business remains steady, although it is not growing much anymore, while revenue from its software services continues to grow at a quick pace.
Low-cost model, headwinds in China, antitrust lawsuits
In order to catalyze growth for its hardware division, Apple is releasing a lower-priced iPhone 16E. The product costs $600 versus $800 or much higher for the latest iPhones, which could help attract more people to switch or upgrade to Apple products. It is not getting much growth from new hardware, such as the Watch, airpods, or Vision Pro. The Vision Pro -- a virtual reality headset released just last year -- has been discontinued after it failed to sell very many units.
Apple is searching for ways to keep the growth party going. Even though revenue grew last quarter, the company is facing revenue headwinds in large geographies such as China, where revenue has fallen for many quarters in a row. The company is losing market share to homegrown Chinese brands.
We can't forget the looming government lawsuits around Apple's antitrust behavior, either. While these are now up in the air with the new Trump administration in charge, Apple is at risk of losing a large part of its profit pool if lawsuits against its search engine distribution deals and App Store fees don't fall in its favor. Apple charges Alphabet's Google Search over $20 billion to be the default search engine on Safari, while it takes around 15% to 30% of every payment that flows through a lot of mobile apps on its devices.
The United States government and court system -- as well as others around the world -- are currently deciding whether these business practices should be illegal. If these earnings streams go away, it could lead to a 20% to 30% drop in Apple's annual profit generation.
Apple is a great business with a wide competitive advantage. Customers are locked into its ecosystem, and in many countries around the world the brand is considered a premium or luxury product. Revenue continues to grow even as it hits a $400 billion level, with earnings growing even quicker due to profit margin expansion.
However, I don't think Apple stock is an attractive buy here. Apple trades at a price-to-earnings ratio (P/E) of 37, which is well above the S&P 500 index average even though the business isn't growing very quickly. There is a risk a good chunk of its earnings will disappear with these antitrust deals. If I have fresh cash enter my portfolio, Apple will not be at the top of my buy list. The stock is simply too expensive.
That does not mean existing shareholders should run for the exits, though. If you bought Apple at a much cheaper price many years ago, it isn't the worst idea to sit tight and keep collecting the growing dividend payouts from your holdings. Investors who don't sell delay paying taxes, too.
Buffett is still holding on to his Apple stock. It isn't crazy if you do the same.
Should you invest $1,000 in Apple right now?
Before you buy stock in Apple, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Apple wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $765,576!*
Now, it’s worth notingStock Advisor’s total average return is890% — a market-crushing outperformance compared to173%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.
