Stock Market

Apple’s Bitter Bite: Is the Tech Giant’s Slowing Growth a Cause for Concern?

The market has shown extreme volatility for months due to inflation and recession concerns. Thus, it’s only prudent for investors to look into resilient stocks during any economic situation. One of the stocks to buy and hold that show resilience is Apple (NASDAQ:AAPL) stock.

Although AAPL stock saw some volatility to kick off 2024 due to weak China sales and E.U. disappointments, analysts still see value in this tech giant. However, many investors are clearly pumping the brakes on this mega-cap stock, given its slowing growth rate, and its recent lack of momentum (relative to other “Magnificent 7” stocks).

Despite this, optimism remains due to Apple’s thriving services segment and recent product launches like the Vision Pro headset. Additionally, the company is shifting focus to artificial intelligence.

With that said, let’s dive into whether Apple’s recent performance renders the stock a sell, or if it’s one worth holding onto for the long-term.

Weak iPhone Sales in China

AAPL stock started 2024 off on the wrong foot, but investors remain cautiously optimistic about the stock. Apple has launched its long-awaited Vision Pro headset to mixed reviews, and its high-margin services segment is growing, though the overall trend is weak.

One of the reasons for this slowing growth trend is Apple’s performance in China.

China’s economic recovery post-pandemic affects Apple’s growth outlook. Citi analyst Atif Malik lowered Apple’s price target to $220, anticipating lower smartphone sales in China. He predicts a 21% decline in unit sales for the March quarter and flat total iPhone sales in 2024.

Counterpoint Research data revealed a 24% decline in iPhone sales in the first six weeks of 2024, resulting in a three-percentage-point loss in market share. Analyst Atif Malik expressed concern over Huawei’s resurgence, preferred by some Chinese consumers. Increased discounts on the iPhone 15 compared to last year’s series were noted, with AAPL stock expected to remain under pressure until the June Worldwide Developers Conference.

Other analysts, like those at Goldman Sachs (NYSE:GS), have adjusted their stance on Apple recently. Despite a slight uptick on Friday, Apple’s shares faced challenges, touching their lowest point since October and declining by nearly 9% over the past month. However, analysts like Dan Ives from Wedbush maintains a positive outlook (as he has for basically forever), setting a high price target of $250 for Apple.

There Are Better AI Bets

Apple’s integration of AI across its products like iPhone, iMac, and Siri signals its commitment to technological advancement. Additionally, the recent launch of Apple Vision Pro reinforces this dedication. CEO Tim Cook’s emphasis on AI’s potential underscores Apple’s significant investment in transformative technology.

Apple holds a distinct position in AI compared to leaders like Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT). While it’s not an under-performer, Apple’s role in AI is less dominant. Amazon’s (NASDAQ:AMZN) AWS platform also contributes significantly to AI, unlike Apple.

Alphabet (NASDAQ:GOOG) faces challenges in maintaining relevance despite efforts like “Gemini.” Currently, GOOG Stock trades at a discount due to concerns about its primary segment’s future. Apple’s valuation closely rivals Microsoft and Nvidia, showing more substantial AI growth potential.

Apple’s AI role is less pronounced than Nvidia’s and Microsoft’s peers. While Apple offers strengths like brand power, investors may find more AI-driven growth in other companies. However, Apple isn’t an “AI loser” but benefits from AI trends, albeit to a lesser extent than Microsoft.

I’d Call AAPL Stock a Hold

Apple has given up its crown as the world’s most valuable company to Microsoft, and with that, its allure among certain investors. While I’m not of the view that near-term momentum means much for those with an investing time horizon longer than five years, I do think it plays into the market’s overall narrative that Apple may underperform for some time. And until Apple shows reasonable top- and bottom-line growth, there’s a fundamental basis for this narrative.

That said, it’s also true that Apple’s world class brand value and consumer loyalty are second to none. I do think this company deserves a premium valuation, but I also think valuation concerns are warranted. Both can be true at the same time.

Thus, AAPL stock is a hold for me right now. Until something drastically changes to the upside or downside, this is a stock I think is too dangerous to short, and too dangerous to add to right now.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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