Unsurprisingly, Apple NASDAQ: AAPL scrapped its plans to build an electric vehicle. After ten years of effort, the goal to launch a 100% autonomous vehicle in 2024 failed to produce even a timeline of when a car might come, and now it's 2024. Add in the fact the EV market bubble has burst, and there are other fruits to gather, and it makes sense for the shift. Ultimately, Apple’s appeal in the EV world will be software and operating systems rather than vehicles, which plays into what the company is shifting to. AI.
Analysts were unfazed by the news. After a brief goodbye to the project, they focused on AI and Apple’s need to catch up. The company appears behind in deploying AI across its ecosystem, a significant opportunity missed. Analysts at Rosenblatt view the company as losing its position as the innovative, market-disrupting consumer tech leader, which may impact the valuation. The stock trades at premium valuations to the S&P 500 and may be unable to maintain it without a new catalyst.
Wedbush’s Dan Ives, among the most ardent supporters, is trying to look past the 1st half of 2024 in favor of brighter days to come. In his view, the recent string of bad news isn’t a reason to buy the stock, but it’s nothing investors haven’t seen before. Each time, the company emerged a winner and delivered for share holders. Soon, the company will be up against easier comps and there is the world wide developer conference to look forward too. Apple is expected to reveal more details about its AI plans at the event in June.
Apple Share Prices Are Under Pressure: Bears Gain Traction
Apple shares hit a peak in mid-2023 that may turn into a long-term top. The company is struggling with traction and it looks like 2024 results will be weak. The latest data from China, about 20% of the company’s revenue last year, is not good. According to Counterpoint Research, sales of iPhones fell 24% in the 1st six weeks of the year and will impact the company’s 2024 results, which are already expected to be weak.
The decline in China's iPhone sales could impact Q1 revenue by a low single-digit and have an accelerated impact on the bottom line because of margins. iPhone margins in China are among the highest for the company and outpace the US and Europe by hundreds of basis points. The worst news is that sales recovery will be hard to achieve because the company is losing market share to Huawei’s Mate 60 line of phones released last year.
Apple’s analysts expect the company’s revenue to contract in Q1 but are underestimating the potential for iPhone weakness. The consensus is for a decline of 4% despite much larger contractions indicated for its supply chain. Foxconn, which assembles about 70% of iPhones, reported a 12% decline in February sales and 17% for the first two months, suggesting Apple’s miss could be large. iPhones are more than 50% of the company’s revenue.
Analysts Forecast a 20% Upside for Apple Stock
Analysts' sentiment has been shifting the last two quarters, including numerous price target reductions and downgrades, but remains solid and bullish. The thirty-three tracked by Marketbeat rate the stock a Moderate Buy and see it advancing 20% at the midpoint. The 20% target is attractive but may be a high target and soon corrected. The midpoint trended higher last year but stalled recently, up only 3% in the previous quarter and 0% in the last month, and may move lower, given the latest news.
Apple’s share price is down nearly 3% after the China iPhone sales data was released. The move has the market at a four-and-a-half-month low and in danger of breaking through critical support at the bottom of a range. Critical support is near $167.50 and would open the door to a deeper decline if crossed. In that scenario, this market could fall into the $140 range. The next earnings report is due in early May.
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