Apple (NASDAQ:AAPL) was one of Berkshire Hathawaylargest holdings in some time. However, Warren Buffett and his team at Berkshire began shedding their position, selling Apple shares every quarter since the fourth quarter of 2023.

Berkshire held about 915 million shares of Apple stock at its peak; it now only holds 300 million, compared to 400 million in the second quarter. As Buffett and his team exit their position in Apple, should investors follow suit? Or is there something else going on here?

Apple is not the same company Berkshire originally invested in

Apple has easily become the most dominant technology brand in the United States, and its influence has spread around the world. You don’t have to look hard to find an Apple product in the United States, whether it’s a laptop, AirPods, or iPhone. This was true enough in 2016, when Berkshire first bought Apple shares.

However, the title is very different today than it was almost nine years ago. When Buffett and his team first bought Apple stock, they saw great value because it was trading around a price/earnings ratio (P/E) by only 10.6.

PEA AAPL ratio data by Y Charts

Looking back to 2016, it’s not hard to remember that Apple was still the dominant technology brand, so this investment opportunity was in front of many investors. Although Buffett is not historically a technology investor, he is a value investor, which represents enormous value.

Buffett was right, and Apple shares have soared since he took the position in 2016. However, this isn’t entirely due to business performance. While Apple’s revenues over the last 12 months and earnings per share (EPS) have increased by 66% and 157% respectively, the stock price has increased by almost 800% since then.

If long-term market returns are highly correlated with earnings growth, how does Apple outperform its EPS growth so much? It all depends on how much investors are willing to pay for the stock.

Apple is far from a value stock

Apple no longer trades at the bargain price of 10.6 times earnings. It now trades at 39 times current earnings. This means that the price that investors are willing to pay for Apple’s profits is four times higher than in 2016. This effect is called “multiple expansion”, because the multiple of profits that investors are willing to pay has increase. This eliminates the value proposition of Apple stock and likely prompted Berkshire to dump its stock.

However, Buffett has not publicly stated it this way. Instead, he presents it as a money grab. At Berkshire Hathaway’s 2024 annual shareholder meeting, Buffett talked about making gains while the federal tax rate was at historic lows. With Donald Trump’s victory in the US presidential election, an increase is almost certainly ruled out over the next four years. Therefore, if Berkshire continues to sell Apple shares in the fourth quarter, we will know that Buffett is selling for a reason other than taxes. .

If Buffett said, “Apple is overvalued, I’m selling my position,” it would cause massive panic and cause the stock price to plummet. Plus, given the size of Berkshire’s stake, it would lose out on huge gains. As a result, Buffett and Berkshire need to keep their cards close to their chest, as they may have even more selling to do.

Even though Apple is much more expensive than before, it also lacks the business performance needed to support that valuation. Last quarter, Apple’s revenue grew at a 6% pace and EPS fell 34%. Since the start of 2023, Apple’s activity has remained stable, but the multiple has increased.

AAPL normalized core EPS (year-over-year quarterly growth) data by Y Charts

This relationship can’t last forever and a correction from Apple could be imminent if the company doesn’t start growing soon. Buffett and his team at Berkshire are enjoying massive gains in Apple shares, largely because of their rising price. I wouldn’t be surprised to see their entire position disappear throughout 2025, and I think investors should follow suit because the activity and the stock price are not in sync.

Should you invest $1,000 in Apple right now?

Before buying Apple stock, consider this:

THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Apple wasn’t one of them. The 10 selected stocks could produce monster returns in the years to come.

Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $847,211!*

Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 values ​​»

*Stock Advisor returns November 25, 2024

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.