No contemporary investor is more studied and scrutinized than Warren Buffett. The chief executive officer of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) is a legend, so the investing community's fascination with his every move isn't surprising.
One of Buffett's recent decisions has attracted quite a bit of attention. Berkshire Hathaway cut its stake in Apple (NASDAQ: AAPL) by almost 50% during the second quarter. It came as a bit of a surprise to some investors, since Apple has been one of Buffett's favorite companies for years. Has the tech giant's investment thesis changed? Should investors follow Buffett's lead?
Still the top holding by a big margin
It's not entirely clear why Buffett decided to sell Apple stock. We can make educated guesses , as many have. It's likely partly for tax reasons, an opinion based on Buffett's answer to a question regarding why the company he leads made this move.
There could be more reasons, too, of course. For example, Apple isn't growing as fast as it once did, and it is facing several challenges, including an antitrust lawsuit from the U.S. Department of Justice. Were these considerations in Buffett's mind when he and his team made this decision?
Nobody can say for sure. But we do know that he still thinks Apple is a great stock. Even though he halved his company's stake during the second quarter alone (after also selling some shares in the first quarter), Apple remains Berkshire Hathaway's top holding. It makes up about 30% of the company's portfolio.
Apple's prospects remain bright
Berkshire Hathaway has had a significant stake in Apple since 2016 and has gotten its money's worth and then some. Times were different back then, when the iPhone was still a major growth driver. Apple's business has since evolved. Perhaps it can no longer generate the kinds of financial results and returns it did during the 2010s.
However, there is still a lot to like about Apple's stock. Let's consider three of those things.
Eyes on AI
First, consider Apple's recent ventures in artificial intelligence (AI). The company will make a suite of nifty AI-powered features that will be available to customers who own the iPhone 15 Pro and above, among other devices. This could kick-start a new cycle of renewals from Apple's incredibly loyal customers -- it holds the highest consumer ratings among the most popular smartphone brands, a powerful competitive advantage.
Solid Services and Sales Revenue
Second, Apple's popularity has allowed it to build a vast ecosystem. The company boasts more than 2 billion active devices. From fintech to healthcare, video and music streaming, and much more, the company has many opportunities to monetize its billions of active customers.
Apple's services segment has been growing faster than the rest of its business for years. Services revenue was up 14% year over year to $24.2 billion.
It is also the more profitable business (compared to product sales). Services gross margin was 74% in the period, up from 70.5% a year prior. Apple's gross margin from its products segment was 35.3% compared to 35.4% in the comparable period of the previous fiscal year.
Yet the revenue services generates still pales in comparison to the iPhone (services is second in this category). In its latest period, the third quarter of its fiscal year 2024 (ended June 29), Apple's net sales increased by 5% year over year to $85.8 billion.
Attractive Dividend
Third, there is Apple's dividend. Though it isn't known as a dividend stock , it has increased its payouts by almost 113% during the past decade. True, Apple's forward yield of about 0.45% isn't impressive. But the company's robust underlying business and ability to generate strong cash flow make it a top income stock.
Buffett loves great dividend stocks. Apple is a lot more than that. It's an innovative tech company with an enormous and loyal base of customers that generates steady revenue and profit.
In my view, Apple is still worth investing in, at least for those investors with a long-term mindset.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy .
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