Shares in Apple (NASDAQ:AAPL) slid 4.8% on Monday, underperforming the broader S&P 500 and Nasdaq Composite indexes. The drop was driven by news that Warren Buffett had sold 50% of his stake in Apple, adding to the pressures on the iPhone maker during an already tough session for tech stocks.
Analysts at Bernstein said the magnitude of the sell-down by Buffet “is curious,” with any future sales “likely to present a much more benign headwind.”
“While he continues to publicly sing the praises of Apple as a business, Buffett has historically been fairly valuation sensitive, adding to his AAPL position at closer to 20x earnings, and trimming at >30x,” analysts noted.
“If Buffett were to lower his position further to the size of his second largest position (BofA) by year-end, it would amount to ~2% of daily trading volume for the stock.”
Moreover, analysts discussed the latest developments in the Department of Justice’s (DOJ) case against Google (NASDAQ:GOOGL). Notably, a federal judge ruled Monday that Google has violated US antitrust law with its search business, stating the tech giant is “a monopolist, and it has acted as one to maintain its monopoly.”
The judge’s decision against Google and its illegal practices – including the company’s relationship with and $20 billion annual payments for default search to Apple – appear threatening. However, Bernstein notes that the final resolution “appears years away.”
“We think a choice screen is a plausible end state, with similar take rates for AAPL as today; and Apple could potentially introduce its own search engine as a choice, which could ultimately be accretive to today’s ISA,” analysts added.
Lastly, Bernstein said Apple is likely to be impacted by recent negative macro headwinds, especially since less than 10% of its revenues are recurring. Still, analysts believe the stock’s fortunes “are most dictated by the strength of its product offerings and associated upgrade rate.”
“We continue to believe that the iPhone 16/17 are likely to be strong iPhone cycles, given AI functionality and lengthening replacement cycles over the last several years,” they wrote.