Berkshire-Hathaway (BRK.A -0.21%) (BRK.B 0.03%) CEO Warren Buffett once spoke in 2020 of Apple (AAPL 1.37%) as Berkshire’s third business, after the insurance arm and the railroad company BNSF. But that could soon be over.

The Buffett-led conglomerate trimmed a large portion of its stake in the iPhone maker in the second quarter, the company disclosed in its latest earnings report. Berkshire reduced its stake in Apple from $135.4 billion at the end of the first quarter to $84.2 billion at the end of the second quarter.

Apple stock also rose 23% in the second quarter. Assuming the sale occurred late in the quarter, Berkshire has sold off about half of its Apple shares. Berkshire began selling Apple in the first quarter, and the value of its stake in the tech giant has fallen 56% since the end of 2023, when it was worth $174.3 billion.

Why did Berkshire sell off such a large portion of its Apple stake after Buffett praised the company so often? There’s no clear answer to that question, but I can make some educated guesses based on Buffett’s past behavior and Berkshire’s historical patterns. Here’s a closer look.

Image source: The Motley Fool.

1. Tax management

After Berkshire’s 13-F filing in May showed that the company had sold more than 116 million shares of Apple, reducing its stake by 13 percent, Buffett addressed the move at the company’s annual shareholder meeting in May. He suggested that the sale was to hedge the risk of a capital gains tax increase, telling his audience, “If I do it (paying capital gains tax) at 21 percent this year and we do it at a slightly higher percentage later, I don’t think you’re going to mind that we sold a little bit of Apple this year.”

Buffett was referring to talks in Washington about raising the capital gains tax, although there are no concrete plans for an increase. However, it is possible that Berkshire continued to sell Apple in the second quarter for the same tax-related reason, despite no recent progress on raising the capital gains tax.

2. Evaluation

Buffett has not commented specifically on Apple’s valuation, but has complained at times about the high valuations on the stock market and seems to believe that prices are once again excessive.

And Apple stock has gotten expensive. The company ended the quarter with a price-to-earnings ratio of over 32, its highest since the early days of the pandemic, when growth soared due to remote work and learning and the need for new devices.

By comparison, Apple’s growth has slowed significantly since then, with revenue increasing 4 percent last quarter. Under these circumstances, it would make sense for Berkshire to reduce its stake in Apple, although it’s unclear whether the sale was motivated by valuation.

3. Obtaining cash

Another plausible reason for Berkshire to sell Apple is to raise cash, perhaps to buy another stock or make an outright acquisition. In Berkshire’s May shareholder letter, Buffett called the company’s ability to capitalize on market sell-offs “our not-so-secret weapon.” To use that weapon, Berkshire needs cash to buy stocks and companies at discounted prices. In that respect, selling Apple, Berkshire’s largest holding by far, makes sense.

The sale helped Berkshire boost its cash reserves, as the company ended the second quarter with $272 billion in cash, cash equivalents and short-term Treasury securities, up significantly from $163 billion at the start of the year.

It’s possible that Buffett and his Berkshire management team were preparing for a market sell-off, and it appears they have been rewarded with one. S&P500 Over a three-day period ending Monday, it lost 6%.

It is also noteworthy that Berkshire has not significantly reduced any of its other top 5 holdings, although it has some Bank of America share price recently. This suggests that there may be more to Apple’s stock sales than just raising cash.

We should learn a little more when Berkshire files its 13-F holdings update next week, which will include a full list of purchases and sales.

Apple is Berkshire’s largest holding after the second quarter and could well remain so, so the sale could have been driven by rebalancing and other portfolio management policies. It’s also possible that Apple’s valuation or slowing growth contributed to the sale.

While we’ll probably never know for sure, Apple investors should take comfort in the fact that the stock remains Berkshire’s largest holding and Buffett has praised the company on numerous occasions.