Its iPhone and Mac revolutionized technology, but recent investors are taking heavy losses: so what bit Apple stock?
The interior of the huge workshop resembles the lobby of a fashionable five-star hotel. The desirable nature of the goods offered is emphasized by a security officer stationed at the entrance.
It’s 10.15am and the Apple store on Regent Street in London is open for business. Eager customers crowd around displays of AirPods, iPads, iPhones and more.
This kind of untouchable success is at odds with Apple’s stock price. In January, the American tech titan was worth $3 trillion, becoming the first American company to achieve that status. But its market capitalization now stands at $2.3 trillion.
Shares fell 20 percent as analysts cut estimates for third-quarter sales and profit in response to surging costs and weaker demand.
Apple, which revolutionized mobile telephony 15 years ago with the release of the first iPhone, today supplies us with a range of elegant devices. It also offers the Apple+ streaming service, which features its merchandise prominently in dramas such as The Morning Show.
How did it lose its edge?
A question you’ll ask if you own the stock directly or have money in funds with a stake in Apple, such as AXA Framlington Global Technology, Polar Technology or T Rowe Price US Large Cap Growth.
Problems at Apple’s Chinese manufacturing facilities are just one reason. Chinese citizens are also less enthusiastic about the iPhone. And markets believe that higher interest rates are reducing the attractiveness of future earnings for technology companies.
In the early years of this decade, the promise of those revenues fueled the rise of stocks like Apple and other Faangs, the name given to Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet). These stocks, which thrived during the correction, have been crowded out in investor favor by “value” stocks that are cheap but believed to have the potential to recover.
The threat of legislation also hit Apple shares. The laws could cut into the revenue Apple gets from downloading third-party apps from the app store, which accounted for 26% of sales in the first quarter.
However, some argue that Apple is anything but the stock it used to be.
Apple is profitable. It also has $73bn (£61bn) in cash, making it a “quality growth stock” that could prove more resilient in a recession. US bank JPMorgan said the alarm was overblown and set a $200 price target on the stock, which is now at $141.
Some even argue that Apple should be seen less of a technology company and more of a luxury company, given the high cost of its devices.
Apple, meanwhile, is luring consumers with a stream of launches. Among them are four iPhone 14 models, a virtual reality headset and Mac computers equipped with ultra-fast chips. That flurry of innovation — as trademarked by Apple as the bite-sized apple logo — will persuade some longtime supporters to hold on to the stock, which is still four times as high as it was five years ago.
James Yardley of Chelsea Financial Services says: “I own shares in Apple and plan to do so for many years to come.
“How many people are giving up iPhones to buy Androids?”
Warren Buffett is the most famous enthusiast. Apple shares make up 40 percent of his Berkshire Hathaway fund, though he hasn’t moved on from the iPhone 11 yet.
I’m one of the few who ditched the iPhone (overrated in my opinion) for Android. But I’m more open to shares of Apple and other members of the Faangs, such as Alphabet, whose empire includes Android, and Microsoft. Gerrit Smith, manager of the Stonehage Fleming Global Best Ideas Equity Fund, says: “The digital revolution is expected to continue to grow – with a complexity factor of one fifth. Both Alphabet and Microsoft are directly involved in this growth through their cloud and software businesses.”
The UK’s Competition and Markets Authority may be investigating Microsoft’s $69bn (£57.4bn) purchase of games firm Activision. The move highlights the regulatory and other hurdles facing Apple and its peers.
But the current climate seems likely to increase rather than decrease the use of technology. This shift will be driven by people who will be designing on the iPad and talking, texting and messaging on the latest iPhone.