By Apple shares have experienced a downturn this year, leading to speculations on Wall Street about the possible reasons behind it and what could potentially reverse the trend.
Recent Performance
Currently trading at $174.68, Apple’s stock witnessed a 2.8% decline on Monday morning. Year-to-date, the shares are down by 9.3%, while the S&P 500 has seen a 7.6% increase.
European Commission Fine
Adding to the downward pressure, the European Commission announced a hefty fine of nearly $2 billion against Apple for its alleged “abusive App Store rules” related to music streaming services. Defending itself, Apple plans to appeal the decision, highlighting the lack of substantial evidence of consumer harm presented by the commission.
Other Contributing Factors
- Goldman Sachs recently removed Apple from its U.S. Conviction List, where it had featured for 274 days, without publicly disclosing the rationale behind this decision.
- Reports surfaced in February about Apple abandoning its car project in favor of concentrating on generative artificial intelligence.
- Following disappointing December quarter earnings, Apple provided a bleak forecast for the March quarter, predicting a potential 5% drop in overall revenue and nearly 10% decline in iPhone sales.
Analyst Perspective
Despite the challenges, analysts at Melius Research urge investors not to panic. Emphasizing Apple’s active installed base of over 2.2 billion devices and high customer loyalty to iOS, they believe a “comeback” is probable. With a Buy rating, they have set a target price of $220 for Apple shares. Challenges Facing Apple in the Near Future
The company is currently grappling with two significant challenges that could potentially impact its revenue in the upcoming months. According to analysts, these challenges include a potential decline in revenue in China and a potential ruling against Google in an antitrust case dating back to 2020.
Impact of a Ruling Against Google on Apple
The analysts point out that a ruling against Google could have adverse effects on Apple since Google pays a considerable amount to Apple for being the default search engine in the Safari browser. This revenue stream plays a crucial role in contributing to Apple’s earnings. Despite the possibility of a lengthy multi-year appeal, any negative ruling could cast a shadow on this revenue stream for Apple.
Focus on Apple’s Artificial Intelligence Strategy
It is advised that investors pay close attention to updates regarding Apple’s artificial intelligence strategy, which is anticipated to be unveiled in June. Analysts believe that this launch is as significant as the iPhone launch and could potentially boost Apple’s services business. Additionally, the introduction of new AI features might inspire users to upgrade their phones in 2025.
Optimism for Apple’s Future
Despite facing some challenges, Evercore ISI analysts, led by Amit Daryanani, express optimism about Apple’s future. They highlight several factors working in Apple’s favor, from Gen AI product launches to Vision Pro adoption to increased free cash flow generation. They maintain an Outperform rating for Apple with a target price of $220.
While Evercore no longer rates the shares at Tactical Outperform following the earnings report, their long-term recommendation remains positive. Tactical calls are based on short-term events or factors that are anticipated to affect stock prices in the near future.
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