Apple’s woes in the Chinese market have been no secret, but a recent report has exposed an even grimmer reality, sending shares plummeting to their lowest point in four months. Nevertheless, history suggests that the tech behemoth has weathered similar storms in the past, even though there may be more turbulence ahead.
On Tuesday, Apple’s shares closed down 2.8% at just above $170 each, marking the seventh decline in the past eight sessions and dragging down the broader stock market with them.
Notably, Jim Cramer predicts a potential further decline of 5% to $160 amidst this downturn. Despite this, he remains steadfast in his approach, opting not to reduce the Club’s shares beyond a minor adjustment made on Jan. 2 to rebalance an overextended position resulting from last year’s surge. Cramer maintains his “own it, don’t trade it” stance on Apple, emphasizing its status as “one of the greatest performers of all times.”
Apple’s downward trajectory persisted into Tuesday following reports indicating a double-digit percentage drop in iPhone sales in China at the beginning of the year. According to Counterpoint Research, sales of the flagship device in China plummeted by 24% in the first six weeks of 2024. The report attributes this decline to intensified competition from domestic smartphone manufacturers offering lower-cost alternatives, including Vivo, Oppo, Xiaomi, and Huawei, which recently re-entered the market for high-end devices.
Jim Cramer remains optimistic, characterizing Apple’s current slump as more of a trading downturn than a reflection of weak company fundamentals. He advises patience during such periods of turbulence, advocating for a wait-and-see approach.
This isn’t the first time concerns have surfaced about Apple’s performance in China, a market that constitutes approximately 20% of its overall sales. Major third-party Chinese retailers have resorted to hefty discounts on iPhone 15 models in a bid to stimulate dwindling demand shortly after its launch, underscoring the challenges Apple faces in China’s price-sensitive market.
However, China isn’t the sole obstacle for Apple. The European Commission recently imposed a hefty fine of nearly $2 billion on the company for alleged violations of competition laws in music streaming. Apple plans to appeal the decision, asserting the legitimacy of its business practices. Cramer views this as a typical move by global regulators targeting large U.S. companies for financial gain, rather than substantiating claims of unfair practices.
Before these setbacks, questions regarding Apple’s valuation began emerging at the start of the year, following a remarkable 48% surge in 2023. Barclays notably downgraded Apple to a rare sell rating from hold on the first trading day of 2024, resulting in a 3.5% drop in shares. The Club’s decision to trim its Apple holdings on that day was part of a broader strategy aimed at profit-taking and managing portfolios, particularly in tech stocks that experienced significant gains in 2023.
Cumulatively, these challenges have pushed Apple into correction territory, with shares shedding approximately 14.5% from their all-time high of $199.62 each and erasing nearly $455 billion in market value since Dec. 14, 2023. During this period, while Apple struggled, the broader market represented by the S&P 500 index gained more than 7%.
Despite the current barrage of bearish news and underperformance, investors may be wondering if there’s a glimmer of hope for Apple.
Indeed, Apple’s strong fundamentals remain intact, offering potential catalysts for future growth, notably in the realm of artificial intelligence (AI). The Club views Apple’s forthcoming AI-driven innovations as a significant driver for its shares. Integrating AI into iPhones could spark a robust upgrade cycle and counterbalance weaknesses in the Chinese market. A recent note from Melius Research echoed this optimism.
During Apple’s annual shareholder meeting, CEO Tim Cook emphasized the transformative potential of generative AI, highlighting significant investments in this area. Cook hinted at forthcoming AI-powered offerings, with expectations mounting for potential announcements at Apple’s annual developer conference in June.
Cook’s remarks followed reports of Apple’s pivot away from its long-standing electric vehicle plans toward AI development. He highlighted existing AI applications in products like the Vision Pro mixed reality headset’s hand-tracking feature, fueling bullish sentiments about its future contribution to Apple’s hardware and services revenue. Additionally, Cook mentioned AI capabilities in Apple Watch’s heart rate alerts and upcoming MacBook models.
Shortly after teasing AI features for laptops, Apple revealed its latest M3 chips, slated for use in new MacBook Air models. Management touted these products as “the world’s best consumer laptop for AI,” signaling Apple’s commitment to integrating AI into its hardware offerings.
