Dear Friend, Subscriber, and Category Pirate,
Berkshire Hathaway is a one of one, legendary Category Queen of investors.
How do we know this? Its annual stockholder meeting, aka the ‘Woodstock of capitalism,' looks more like a sold-out concert of Swifties than a gathering of shareholders.
We Pirates were delighted when Berkshire invested in Apple in 2016, just like when the greatest bands in the world mash-up for the 2016 Superbowl halftime show.
This investment was radically different for Warren Buffett and Charlie Munger. They famously avoided investing in ‘things they didn’t understand,' like technology. Munger literally said, “You could hardly think of another business that is more un-Berkshire-like than Apple.”
But Buffett became intrigued when he heard the iPhone had a 95% retention rate.
It reminded him of some of his other famous investments (like Coca-Cola) that had similar ‘addiction level’ loyalty. So, Berkshire invested $36 billion. And Apple became the single most successful stock holding in Berkshire’s history.
Apple is another OG Category Queen, but will it maintain its position as an innovative, dominating company?
We have a world of respect for Tim Cook, who created massive success and abundance in what was an impossible job of taking over from the most Piratey of Pirates, Steve Jobs. (This was the thank you letter Pirate Eddie wrote after Jobs passed away.)
But Pirate June-Bug whispered something into Pirate Christopher’s ear, having come from high on her perch on the pirate ship.
She squawked, “The winds are changing…”
Berkshire Hathaway reduced their Apple stake by 13% in Q1 of 2024. This is the second quarter in a row that Berkshire trimmed its Apple holdings.
Apple announced a massive stock buyback of $110 billion dollars, which is both the largest buyback in Apple’s history and in the history of the entire stock market.
Apple canceled Project Titan, its EV venture, after having invested $10 billion.
What does this mean for Apple, its shareholders, and the categories it dominates?
Let’s look at Apple through the Strategy Therapy lens: evaluating it for brutal honesty, courage, and clarity.
Brutal Honesty
Honesty is one of Apple's strengths.
Jobs famously said, “Innovation is saying no to 1,000 things.” Apple’s decision to cancel its EV was disappointing, but we Pirates respected the stance. The company was super honest that a) Tesla and BYD were too far ahead and b) there was no legacy auto manufacturer who could help it catch up. Apple knew it would look bad in the press and it would not be fun to fire/redeploy the 5,000 employees working on it.
But it still shut down the project.
Radical Courage
This area is where we're disappointed with Apple, given the information we have. Pirates generally hate stock buy-backs because it is an admission that executives don’t see anything worthy of investment. The conversation at the leadership level often goes like this:
"Susan, I’m sorry to report that the executive team has run out of ideas."
“Sorry to hear that Jimmy. I guess we’ll just buy back the stock, and buy our way to market cap growth.”
Is it truly the case that there was no better use for the $110 billion dollars than stock buybacks? We say, “Avast ye matey! That be a plank ye walking on.” There’s too much evidence that there are numerous trillion-dollar markets to invest in:
Electric Vehicles: The automotive market is $2.9 trillion dollars. Only 18% of the market was EVs. It’s just a matter of time before EVs are the majority of sales.
Robo-Taxis/Autonomous Driving: Ark Investment projects ride-hailing via autonomous vehicles to be an $11 trillion dollar market.
Artificial Intelligence: Ark Investments also projects the total AI software market to be $14 trillion by 2030.
Now, the global GDP in 2023 was $27 trillion.
So these numbers might feel insane…
…but welcome to the worldview of Category Design. It’s a world of abundance and massive economic outcomes for the courageous few willing to work on the exponential different. Apple has one of the largest cash balances of any non-financial institution on the planet (over $160 billion), and Apple’s free cash flow for 2023 was $99.584B. It is a cash manufacturing plant. Investing in a monster-stacked cake of that size is no mean feat.
And yet…
We’re disappointed to see Apple fold its cards and cash out (so many of) its chips to shareholders.
Clarity
Apple's worldwide developer conference is in June. Tim Cook has teased big plans for Artificial Intelligence. We hope (at a minimum) the team can fix Siri!
When asked directly why Berkshire trimmed its position in Apple, Warren Buffett noted that he expected capital gains taxes to increase in the near future, given the US government’s debt loads and deficits. He reiterated that Apple was a wonderful business, just like Coca-Cola and American Express are wonderful businesses. And he said he hopes to own all of these businesses for the foreseeable future.
Buffett is clearly not worried the sky is falling for Apple.
Here’s what Apple, Coca-Cola, and American Express have in common:
They are all dividend stocks
Coca Cola = 3.12% yield
American Express = 1.21% yield
Apple = 0.52% yield
They are all currently Category Queens.
Remember: Today’s solutions become tomorrow’s problems.
American Express and Coca-Cola have a low probability of designing and dominating a new future. Both companies have far too much to lose, are generations away from the original founder, and have investors that reward performance not potential. Apple is at a crossroads between yesterday and tomorrow.
Come June, we'll see if Tim Cook has the right combination of honesty, courage, and clarity to continue creating new categories.
Because there’s another Category Queen quietly innovating—and most people are not paying attention.
Microsoft Is Making Monster Category Moves In Cloud/AI
New categories create (more) new categories.
And some new categories create massive new growth opportunities, which turn into a multiplying category ecosystem of legendary and many new sub-categories and adjacent categories.
When a king-kong-sized, monster-ton, super-ding-dong new mega category is designed, a wise strategy is often to swarm the opportunity. It's smart to DAM the Demand, from a massive tailwind, as a starting point for leveraging your different. That’s exactly what legendary startups do—and that's why they create different futures.
What’s (much less) normal is when a $3 trillion dollar Category King with over 200,000 people does it.
This is why in tech world boardrooms and cocktail parties, more and more you hear people say, "Satya Nadella might be the greatest CEO of all time." 🤔
Take a look at a few moves Microsoft recently made:
Microsoft's fiscal Q3 cloud revenue hit $35.1 billion, with an impressive 23% growth rate
Microsoft announces $2.2 billion investment to fuel Malaysia’s cloud and AI
Microsoft invests $1.7 billion to expand cloud services, AI, and data centers in Indonesia
Microsoft announces AI skilling opportunities for 2.5 million people in ASEAN
Microsoft to invest $2.9 billion in AI and cloud infrastructure in Japan
Microsoft's billion-dollar bet on G42 spotlights the UAE's AI ascension
Microsoft says it aims to make Saudi Arabia global innovation hub
Adobe and Microsoft partner on generative AI capabilities marketers
Coca-Cola made a $1.1 billion commitment to the Microsoft Cloud and its generative AI capabilities
Microsoft and NVIDIA deepen partnership to innovate in healthcare and life sciences
Microsoft says it released 30 responsible AI tools in the past year
Nadella To Microsoft: Prioritize security over new features
Microsoft made the biggest renewable energy agreement ever to fuel its AI ambitions
This is what it looks like to swarm on a massive category potential.
Which begs the question….
Is there a category potential you should be swarming?
Imagine it’s five years in the future.
Imagine all of the possible different futures that could happen.
Imagine all of the possible different futures that you could make happen.
What do you see?
Now, standing five years out.
Looking “back” to today.
What exponential changes do you see, that “now” seem obvious but are less obvious from today?
This is a simple exercise for category designing your own future.
Our friend, Mike Maples Jr., calls this “Backcasting.”
“Legendary builders must stand in the future and pull the present from the current reality to the future of their design.”
Might we be so bold as to suggest:
Now might be a great time to do some thinking about thinking on what new category potential could/should you be swarming.
Side Note: At Categories Pirates, we drink our own whiskey. As an example of how this might apply to your own content and business, here's how we're swarming on two new categories of innovation that are deeply connected.
For the last year, we’ve been building a digital community. The Category Design Academy is a reservoir of like-minded, different people, who are what you might think of as, “The Different Few.” These are people who are now, or who aspire to be, what in category design is called “material impact executives.” We deeply believe Native Digital communities are the future. That’s why we’re all in on creating a training ground for category designers.
Second, we’re creating the first custom AI Pirate content large language model (LLM). The goal is to help you find the answers you need from our content by interacting with a custom chatbot. Imagine ChatGPT for Different Executives. For the Pirates, Dreamers, and Innovators who dare to category design the markets of the future.
We plan to write a mini-book about the Academy and LLM soon to share our process, explain what worked (and what didn't!), and show you how to leverage category adjacencies and category potential for your own category. What we can report is that we’re having a blast doing it. And we can't wait to share it with you.
Until then, let us know what category you're designing so we can connect the dots for your category potential.
Arrrrrr,
Category Pirates
What Apple's $110 Billion Stock Buy-Back Means For The Category Queen