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Apple (AAPL) stock has had a remarkable run over the last few years, and was the best-performing FAANG stock in 2019 and 2020. It reclaimed the title in 2022, as it fell less than its tech peers amid the broader market meltdown. However, Apple’s returns trailed those of its FAANG peers in 2023, and it has the dubious distinction of being in the red this year, even as other FAANGs have either hit record highs or are nearing one.
In fact, Apple stock is trading at its lowest level since October, and is not far from its 52-week lows. Why is Apple stock going down, and should you buy the dip? We’ll discuss in this article.
Why Is Apple Stock Dropping?
Apple stock has been dropping and underperforming its Big Tech peers for multiple reasons. These include:
- Stagnant sales: Apple’s sales fell YoY in all four quarters of the last fiscal year, and marked the first time since fiscal 2019 that its annual revenues fell on a YoY basis.
- China slowdown: The deepening slowdown in China has hurt sales of companies like Apple, Nike (NKE), and Tesla (TSLA), which all get a big chunk of their revenues from the world’s second-largest economy. All of these stocks are in the red this year, which can be partially attributed to concerns over their China operations.
- U.S.-China tensions: The prospect of Donald Trump retaking the White House is not helping the cause of companies like Apple, which source the bulk of their goods from China. Investors may recall that Apple shares cratered in Q4 2018 as Trump ratcheted up the trade war with China, imposing tariffs on most Chinese imports.
- Lack of new growth initiatives: Apple hasn’t launched a groundbreaking product since its AirPods in 2016, and lacks its “next iPhone-sized opportunity” to drive growth. The company’s Vision Pro headset, despite being an incremental revenue opportunity, might not move the needle too much for Apple, which generates nearly $400 billion in revenues annually.
- Not much innovation in iPhones: Despite Apple having diversified its revenue base, the bulk of its revenues still come from the iPhone. Over the years, the newer iPhone versions have largely featured incremental changes, and are not really disruptive enough to fuel a mega replacement cycle among users.
- Regulatory woes: Like its fellow Big Tech peers, Apple also faces antitrust issues – especially in the European Union (EU). Those woes are far from over, and last month the European Commission imposed a nearly $2 billion fine on Apple over antitrust actions. The company’s lucrative and high-margin Services business has especially been a bone of contention with regulators over the alleged monopoly. Now, Apple also faces monopoly charges from the U.S. Department of Justice over its iPhones.
Even Warren Buffett seems to have taken note of Apple’s troubles, and Berkshire Hathaway (BRK.B) sold some Apple shares in Q4 for the first time since 2020.
Should You Buy the Dip in Apple Stock?
Apple’s valuation multiples have corrected, and it now trades at a forward price-to-earnings (PE) multiple of around 25.7x. Its NTM PE multiple is the third-lowest among the “Magnificent 7,” and only Alphabet (GOOG) trades at a significantly lower multiple.
Notably, even Meta Platforms (META), which has historically traded at a significant discount to Apple, currently trades at similar multiples
While I believe that Apple should find valuation support at these price levels, the company needs to find a way out from the current scenario, where both its top-line and bottom-line growth are sagging. To revive its fortunes, Apple might need to come up with its own “year of efficiency,” like Meta Platforms. While Apple also worked on cost cuts, it wasn't to the same extent that Meta - or for that matter, even Amazon (AMZN) - did.
The other thing that Apple needs to do is to find a way to return to top-line growth. Apple might unveil new products or enhancements to its existing portfolio at the Worldwide Developers Conference (WWDC), which is scheduled for June 10-14. Apple seems to have read the writing on the wall, and reports suggest that it might showcase the iOS 18 with AI capabilities at the event.
Apple needs to convince markets that it is not lagging behind its tech peers in incorporating AI across its different products. While AAPL still might not see an Nvidia-caliber rally, this would at least help it play catch-up in terms of the “AI boom.”
Overall, Apple needs to deliver on both revenue and profitability growth, and a major iPhone upgrade with enhanced AI capabilities could just do the trick. Going by Apple's long track record in innovation, I have no reason to believe that the company will not be able to come up with appealing AI advancements to its portfolio soon, and will therefore be buying the dip, given the reasonable valuations.
On the date of publication, Mohit Oberoi had a position in: AAPL , AMZN , META , NVDA , BRK.B , TSLA , NKE . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
