Recession fears and Berkshire Hathaway’s decision to reduce its holding in Apple have unravelled the sector’s months-long rally, with the Magnificent Seven’s shares on track to lose nearly $1 trillion in combined market capitalization.
The iPhone maker’s shares also plummeted 6.5%, wiping out roughly $900 billion in market capitalization, following other big tech companies such as Nvidia, Alphabet, Tesla, Microsoft, Meta and Amazon.
The stock market decline came after a weak jobs report on Friday, which sent investors around the world fleeing to safe-haven assets and fuelled speculation that the Federal Reserve will soon be forced to cut interest rates to support economic growth.
The Federal Reserve on Wednesday kept interest rate cuts on hold, signalling the long-awaited measures could come as soon as September.
However, prominent economist Jeremy Siegel In the wake of the market crash, they called on central banks to make emergency interest rate cuts immediately.
Semiconductor stocks, which have fueled new hopes for AI among technology investors, were also hit hard by the economic worries on Monday, with shares of Intel, Supermicro and Broadcom falling nearly 7%.
Intel’s shares plunged more than 25% on Friday, marking one of its worst trading days in four decades, after the company announced disappointing profits and cost-cutting plans that included laying off 15% of its workforce.
Shares of the three biggest cloud-computing services companies — Amazon, Microsoft and Alphabet — have fallen in recent weeks after their earnings reports raised concerns that the billions of dollars being poured into AI could hit their profit margins.
“Expectations for the so-called ‘Magnificent Seven’ group have perhaps been set too high. Their success puts them out of reach in the eyes of investors, and any fall short of greatness leaves them open to harsh criticism,” said Dan Coatsworth, investment analyst at AJ Bell.
Last weekend, Warren Buffett’s Berkshire Hathaway said it was cutting its stake in Apple in half, stoking investor concern.
According to Bloomberg, the company’s holdings have fallen from about $140 billion at the end of March to about $84 billion now.
Since Buffett first bought Apple shares in 2016, the company’s shares have soared 900%, generating billions of dollars in unrealized gains for the company.
While many are panicking and calling Buffett’s sale of Apple shares a cause for alarm, some on Wall Street are urging investors to stay calm.
“Buffett’s reduction in Apple shares is purely a risk management move.” “The numbers are pretty strong,” Joe Gilbert, senior portfolio manager at Integrity Asset Management, told Bloomberg..
“If Buffett had any concerns about Apple’s long-term viability, he would have liquidated his entire holding. As with Berkshire’s other reductions in its holdings, Buffett is left with a significant unrealized gain,” Gilbert said.
The day before Berkshire announced its sale, Apple released quarterly earnings in which it signaled a return to revenue growth and predicted that new AI technology would boost sales.
Apple remains Berkshire’s largest holding, so the company may just be reducing its holdings.
“If you have this outsized position, you can lock in some of the profits and mitigate some of the concentration risk,” Cathy Seifert, research analyst at CFRA, told Bloomberg.
“Their portfolio is still quite concentrated,” she added.
Berkshire reduced its holdings of Apple shares in the first quarter of this year and had signaled plans to reduce its stake.
Some analysts think investors should hold on to Apple shares and keep their hopes high that the company’s upcoming AI efforts could boost sales.
“While some may interpret this as a confidence concern, Apple just delivered strong quarterly results ahead of a major AI-driven supercycle and we don’t see this as the time to hit the exit button,” Wedbush analyst Dan Ives told Bloomberg.
Buffett’s company has also reduced its stake in Bank of America, cutting it by 8.8% since mid-July.
So its reduction in Apple shares is probably a prediction for the economy as a whole, rather than a concern about Apple’s business itself.
