Apple (AAPL) investors have had very little to celebrate this year. AAPL was the worst-performing FAANG stock last year, even as it gained 49% in 2023 – a feat that outpaced the 44% returns delivered by the Nasdaq Composite ($NASX). AAPL stock is down 11% Year-to-Date (YTD) so far in 2024, marking it as the worst-performing FAANG stock again this year. Among the broader category known as the “Magnificent 7,” only Tesla (TSLA) has fared worse than Apple, down 31% year-to-date.
Apple also lost its $3 trillion market cap – relinquishing the title of the world’s most valuable company to Microsoft (MSFT). Amidst these setbacks, there is now speculation that Nvidia’s market cap might exceed that of Apple.
Why is Apple stock underperforming its mega-cap peers, and when will AAPL stock recover and go back up? Let’s delve deeper into the reasons behind Apple’s struggles and its potential for resurgence.
Challenges Driving Apple Stock Down
Apple stock is facing a downward trajectory due to various factors. Firstly, the company’s growth has decelerated, with revenues declining year-over-year in all four quarters of the last fiscal year. Additionally, Apple’s China business is under significant pressure from both the general economic slowdown in China and fierce competition from local smartphone manufacturers, notably Huawei.
Secondly, regulatory challenges persist for Apple. The European Commission recently imposed an almost $2 billion fine on Apple for antitrust violations. This echoes similar issues faced by Alphabet (GOOG), which has grappled with comparable challenges related to its Play Store policies.
Furthermore, Apple is currently lacking a transformative new product akin to the iPhone that could drive substantial growth. The incremental revenue potential of the Vision Pro headset may not be sufficient to significantly impact Apple’s substantial annual revenue of nearly $400 billion.
Notably, rumors suggest that Apple has abandoned its ambitions in the electric vehicle (EV) sector, potentially missing out on a vast market opportunity despite the ongoing tumult in the EV industry.
Apple Stock Outlook: Warren Buffett Sells Shares
During the fourth quarter of 2023, Berkshire Hathaway (BRK.B), led by famed investor Warren Buffett, divested 10 million Apple shares, marking the first time since 2020 that the conglomerate reduced its AAPL holdings. Analyst sentiment towards Apple has cooled as well, with the stock receiving three downgrades in January, a rarity for the Cupertino-based tech giant.
Currently, Apple holds a consensus rating of “Moderate Buy” among analysts, with approximately two-thirds of them considering it a “Strong Buy” or “Moderate Buy.” The mean target price for AAPL is $207.56, indicating a potential gain of almost 20% from the previous closing price.
Prospects for Apple Stock Recovery
Apple stock appears to have reached a nadir, with limited downside potential from current levels. Despite missing out on the surge in AI stocks, Apple’s pivot towards artificial intelligence could lead to a reevaluation of its stock. However, Apple needs to demonstrate its AI integration across various products to dispel concerns of lagging behind tech counterparts. While Apple may not experience a rally akin to Nvidia’s, catching up in the AI realm could aid its resurgence.
Apple is currently out of favor with investors, with apprehensions about its China operations serving as a key concern. Similar pressures have affected other companies like Tesla and Nike, reliant on Chinese markets for revenue generation. Moreover, the uncertainty surrounding a potential return of Donald Trump to the White House has further heightened market anxieties. In the past, Apple shares plummeted during Trump’s trade war escalation with China, highlighting the company’s vulnerability to policy shifts.
In summary, Apple requires multiple positive catalysts – both macroeconomic and company-specific – to initiate a stock recovery. CEO Tim Cook hinted at forthcoming details about Apple’s AI initiatives during the Q1 2024 earnings call, signaling a potential trigger for bullish momentum in AAPL.