Apple (AAPL) investors are weathering a tumultuous storm this year, with little reason to pop the champagne. AAPL had a lackluster performance last year, becoming the worst-performing FAANG stock despite a 49% surge in 2023 – outperforming the Nasdaq Composite ($NASX) at 44%. The grim saga continues in 2024 as AAPL struggles, plummeting 11% year-to-date and regaining the unfortunate title of the worst-performing FAANG stock, with only Tesla (TSLA) performing worse.
Adding insult to injury, Apple lost its prestigious $3 trillion market cap throne, conceding the crown of the world’s most valuable company to Microsoft (MSFT). Speculations are rife that Nvidia’s (NVDA) market cap might soon eclipse that of Apple, a concept bordering on the unthinkable a couple of years ago.
So, why is Apple stock in the doldrums, and can it stage a comeback? Let’s investigate.
Unpacking the Reasons Behind Apple Stock’s Decline
Apple’s stock decline can be attributed to multiple factors. Primarily, the company’s growth trajectory has hit a roadblock, with revenues witnessing a year-on-year decline across all four quarters of the past fiscal year. In China, Apple faces fierce competition from local manufacturers like Huawei, compounding its woes in the world’s second-largest economy.
In addition, Apple is grappling with a mounting pile of regulatory issues. Recently, the European Commission slapped the tech giant with a hefty nearly $2 billion fine over antitrust violations. Alphabet (GOOG), the worst-performing Magnificent 7 stock over the last decade, has faced similar challenges concerning its Play Store regulations.
Furthermore, Apple is yet to identify its next blockbuster revenue source equivalent to the iPhone. Initiatives like the Vision Pro headset offer incremental revenue potential but might not move the needle significantly for a company already raking in nearly $400 billion in annual revenues. Tossing a curveball, Apple reportedly abandoned its electric vehicle (EV) ambitions, missing out on a potential market expansion opportunity.
Lastly, with a stagnant growth outlook, Apple’s current valuations appear stretched. The stock’s price-to-earnings ratio for the next 12 months stands at 26x, a notable premium compared to longer-term averages.
Outlook for Apple Stock: Even Warren Buffett is Lightening his Load
In Q4 2023, Berkshire Hathaway (BRK.B), led by the investing icon Warren Buffett, shed 10 million Apple shares. Although the conglomerate’s divestment was minor at around 1%, it marked the first time since 2020 that Berkshire reduced its AAPL holdings. Investor sentiment towards Apple is waning, evidenced by three downgrades in January – a rare occurrence for the Cupertino-based giant.
Analysts predict a moderate buy outlook for Apple, with approximately two-thirds issuing a “Strong Buy” or “Moderate Buy” recommendation. The consensus target price of $207.56 represents an almost 20% hike from the previous closing price.
Charting the Road to Recovery for Apple Stock
The belief lingers that Apple’s stock is hovering around its nadir, with limited downside potential from its current levels. As the company veers towards artificial intelligence (AI), sought-after in contemporary markets, a revaluation might be on the cards. Apple must, however, convince stakeholders that it is not trailing its tech compatriots in integrating AI seamlessly throughout its product range. Though not poised for an Nvidia-esque surge, Apple stands to narrow the gap in the AI domain.
Presently, Apple sits on the sidelines of market favoritism, shadowed by apprehensions surrounding its Chinese operations. The fear factor is palpable, with the looming specter of a potential return of Donald Trump to the White House further unsettling investors. History repeats, and as Trump escalates trade tensions, Apple may find itself navigating stormy seas akin to the Q4 2018 market squall. Uncertainties abound, especially with talks of hiking import tariffs from China to over 60%.
In essence, Apple needs a constellation of favorable factors to align – both on macroeconomic and company-specific fronts – to turnaround its stock fortunes. Apple’s CEO, Tim Cook, hinted at revealing more about the company’s AI endeavors later in the fiscal year during the Q1 2024 earnings call. A substantial leap in this field could reignite the bullish spirit surrounding AAPL.
