Berkshire Bets on the Moat as Washington and Beijing Circle Apple

Berkshire Bets on the Moat as Washington and Beijing Circle Apple Berkshire Hathaway’s year-end 10-K filing reaffirmed its massive stake in Apple Inc. Despite trimming approximately 10 million shares, Berkshire still held 905.6 million shares valued at $174 billion as of December 31, 2023. This position, representing the firm's largest public equity holding, signals a deep conviction that is now running against a tide of mounting regulatory challenges and signs of consumer weakness in key markets. ## Background The broader market has seen a fracture in the leadership that defined 2023. While the S&P 500 has pushed to new highs, the “Magnificent 7” stocks have diverged, with Apple lagging its peers and trading down year-to-date. The company's February earnings report showed a 2% rise in total revenue to $119.6 billion, but the details revealed a 13% year-over-year decline in sales from Greater China. Guidance, the company's own forecast for future results, also pointed toward a consolidated revenue decline for the March quarter, stoking concerns about the current iPhone cycle and the company's near-term growth trajectory. Berkshire Hathaway’s position is not a trade; it is a core holding built since 2016 based on a thesis of durable competitive advantage. The firm values Apple's powerful ecosystem of hardware and software—its “economic moat”—that ensures a sticky consumer base. This long-term view contrasts sharply with the market's current fixation on quarterly sales figures and headline risks. The position's size makes it a bellwether for Berkshire’s own performance, tethering its results to a company facing significant headwinds. ## Why it matters The divergence between Berkshire’s holding pattern and the market’s bearish sentiment highlights a fundamental disagreement on what drives Apple’s value. Traders are focused on new, material threats. In March, the U.S. Department of Justice filed a sweeping antitrust lawsuit targeting Apple's smartphone dominance. This follows the implementation of the European Union's Digital Markets Act, which forces Apple to open its ecosystem to third-party app stores and payment systems. Both actions directly threaten Apple’s high-margin Services division, which posted a record $23.1 billion in revenue last quarter and is central to the company’s growth story and its valuation multiple—the price investors pay per dollar of earnings. Berkshire is on the other side, betting that Apple’s brand and installed base of over two billion active devices can withstand these pressures. Its lack of significant selling implies a belief that the moat remains intact and that regulatory fines or forced business model adjustments will be manageable. If this view proves correct, momentum funds and short-sellers currently betting against the stock are on the wrong side. If, however, the DOJ or EU succeeds in fundamentally eroding the profitability of the App Store and the broader services ecosystem, Berkshire's largest holding could become a significant drag on its portfolio. ## What to watch The next direct test of these competing views will be Apple's second-quarter earnings report. Analysts expect the company to report revenue consistent with its prior guidance of an approximate 5% year-over-year decline. The key data points to watch will be the performance of iPhone sales and, critically, the services revenue line for any early impacts from DMA compliance in Europe. Management’s commentary on demand in China and its outlook for the June quarter will be scrutinized for signs that the competitive and regulatory pressures are impacting results more severely than the bulls currently factor in.