EEven in a week like this, when markets are thin and interest is minimal, Apple (AAPL) has garnered a lot of attention. The stock closed at a new 52-week low when traders returned from vacation on Tuesday, but any hope that this level would form support to bounce off was dashed yesterday when AAPL slowed the market after a start. promising day. It is now at its lowest level since June 2020:
It’s not a pretty 2-year chart, and investors inevitably wonder if the stock can be expected to rally anytime soon, or if it will fall further. To understand AAPL’s outlook, however, you need to understand the most likely causes of the sale, so let’s start there. The most obvious reason for Apple’s steep year-over-year decline is that market selling has been led by technology. For many people, Apple is the ultimate tech company, with a massive global presence, so it makes sense that its stock would drop during this time.
This analysis, however, has a major flaw.
Apple is no longer a technology company. It makes tech consumer products, sure, but it’s now more of a consumer staples company than anything else. It sells branded lifestyle rather than phones and laptops, which makes it more akin to something like Coca-Cola (KO) than, say, a software company. That’s why it held up so much better than other ‘tech’ names in the first eight months of the year. Then, in August, the mood changed and AAPL, far from outperforming on the downside, began to lead the charge lower.
Obviously, Apple hasn’t become more of a tech company in those eight months or so, but something has changed market perception. That thing was the continuing problems in China with Covid. Apple, as most people know, outsources most of its manufacturing to China, and with lockdowns and other restrictions across that country, production has been hit hard. This appears to be a case where “supply issues” aren’t just an excuse for poor sales, they’re all too real.
I understand the limitations of anecdotal evidence, but a few weeks ago I had first-hand experience of the problem here. I wanted to buy a new iPhone 14 Pro Max in a particular color for my wife in time for Christmas, but when I asked my local AT&T(T) store, the sales assistant I was talking to patiently told me that ‘get everything Pro Max, let alone one with a specific color, in a few weeks just wasn’t possible.
“These phones have been out of stock since release,” she said. While it’s possible that the store I visited was particularly incompetent when it came to stock control, it’s more likely that these phones are very rare.
These supply issues will have weighed on Apple’s numbers for some time and will certainly hurt the outlook for a quarter or two, and that seems to be a big part of what sparked the run on the stock. It is assumed, however, that the disruptions in China will not last forever, and that as zero-Covid restrictions are eased, Foxconn and other Apple suppliers will catch up. If so, the question is how much damage the shortages will have done to the brand, and the answer is probably little or none.
Most people, when told that the Apple phone they want is not available, are unlikely to buy another brand. They are too involved in the Apple ecosystem and too familiar with the features and operation of an iPhone to do so. They are much more likely to wait or do what I did and buy whatever is in stock. This means they will either postpone a purchase or spend less than expected. Either way, it hurts Apple’s revenue and profits.
In other words, Apple’s current problems are not indicative of long-term problems for the brand and, instead, will simply create pent-up demand.
While the start of the year won’t necessarily see a change in AAPL’s fortunes, it will see a change in the company’s outlook. As China reopens and inventory recovers, sales will increase. It’s entirely possible that if this comes as interest rate hikes around the world begin to impact growth, Apple will be one of the few companies to show real growth in a recessionary environment. So, for my part, I will not be selling my AAPL stock, but rather looking to buy more at the start of the year on the basis that for Apple, that too will pass.
* In addition to contributing here, Martin Tillier works as a research lead on the SmartFI crypto platform.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.