Warren Buffett has been leading investment management firm Berkshire Hathaway since 1965. Over the last several decades, Buffett and his close-knit team have consistently outperformed the S&P 500 (^GSPC -0.29%) -- turning Berkshire Hathaway into one of the most successful portfolio management firms in history.
And yet, even with such an incredible long-term track record, Buffett's investment style remains incredibly simple. Known as the Oracle of Omaha, Buffett has historically preferred investing in blue chip companies that generate steady profits and use their excess cash flow to reward investors in the form of a dividend or buybacks.
Given this set of protocols, you might be surprised to learn that Berkshire has any exposure at all to volatile industries such as artificial intelligence (AI). While AI is not really a priority area for Buffett, Berkshire's largest position is in Apple (AAPL -0.39%) -- which comprises approximately 26% of the portfolio. I should note, however, that Buffett has been trimming his stake in Apple for several quarters now.
One of Wall Street's most bullish tech analysts, Dan Ives of Wedbush Securities, is calling for Apple to reach a $4 trillion valuation this year. Below, I'm going to break down what is driving Ives' forecast and provide my own outlook for Apple's potential in 2025 as well.
Could Apple be on its way to a $4 trillion valuation, or should investors be following Buffett's moves and sell the stock?
Why is Dan Ives so bullish on Apple?
Apple is known for its lineup of luxury hardware devices across mobile, wearables, and personal computing. But with that said, the company's largest revenue stream by far comes from the iPhone -- which accounts for nearly 49% of total revenue.
With so much of the business concentrated in just one product, it's hard not to draw a parallel between Apple's growth trajectory and the specific performance of the iPhone business. As it relates to valuation, Ives thinks that there is a massive backlog of consumers who have not upgrades their iPhone in several years. As such, Ives has estimated that Apple could sell 240 million new iPhones this year -- referring to these mass upgrades as a supercycle.
Considering the new iPhone 16 is equipped with Apple's AI software, dubbed Apple Intelligence, it's not unreasonable to believe that consumers will swap out their old devices for Apple's latest and greatest.
However, I think the idea of a supercycle tends to sound nicer in theory than in reality.
Image Source: The Motley Fool
Why I'm not completely buying his idea
According to a recent research report published by the China Academy of Information and Communications Technology (CAICT), iPhone shipments in China fell by 47% in November. This is important, as China represents Apple's third largest regional demographic for sales -- trailing the Americas and Europe.
While weak demand trends in China is one problem, there could be something more pernicious looming in the background. According to a recent study from CNET, one quarter of smartphone owners don't find any value add from AI features on their mobile devices. Moreover, 45% of users aren't keen on paying an extra fee for these AI-powered services.
In other words, products like Apple Intelligence may be a big nothingburger for the time being. While I agree with Ives in the sense that many iPhone users are in need of an upgrade, I think one caveat is that people can purchase a newer model phone compared to what they currently have, but not necessarily opt for Apple's newest and most expensive offering. Said a different way, I don't think every upgrade in the so-called supercycle is going to be from an iPhone 16 -- and that could play a major role in how much Apple grows this year.
Will Apple reach a $4 trillion valuation in 2025?
As of this writing (Jan. 24), Apple's market capitalization is $3.3 trillion. This means that Apple's valuation needs to rise by roughly 21% to reach the $4 trillion milestone.
Here's my candid take: AI is still the technology sector's biggest tailwind. For this reason, I could easily see Apple stock rising this year purely from macro conditions driving the broader technology landscape. But even if that happens, that doesn't necessarily mean Apple is the most optimal place to find growth.
Apple's revenue has been relatively flat for years now, and the company is only really "growing" its earnings through generous share buyback programs. To me, AI isn't playing much of a role for Apple right now and I am suspicious that iPhone 16 is going to be as impactful as Ives is projecting.
So while Apple could (and I think will) reach a $4 trillion valuation, I wouldn't necessarily be a buyer of the stock right now. I think Buffett has been correct in trimming his position. To me, there are far better growth opportunities in the AI realm beyond Apple.
