Apple Stock’s Safe Haven Status Is At Risk As Headwinds Increase

Apple Stock’s Safe Haven Status Is At Risk As Headwinds Increase

(Bloomberg) — Apple Inc.’s status as a relative safe haven in this year’s bear market is under threat amid growing concerns that iPhone sales are weakening, heralding further declines for tech stocks in the US. general.

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Over the weekend, the Cupertino, California-based company said Covid-related lockdowns in China would cause shipments of its new premium phones to be lower than expected. Bloomberg News also reported that due to weaker demand, Apple expects to produce at least 3 million fewer iPhone 14s this year than initially anticipated.

The stock rose 0.6% on Tuesday, taking its year-to-date decline to 21%. The Nasdaq 100 index is down 32%. Other major technology and internet stocks, including Microsoft Corp., Inc. and Alphabet Inc., fell between 32% and 46%.

Apple was the only mega-cap to rebound in the wake of its results this quarter, and the report prevented analysts from slashing earnings estimates, in contrast to widespread cuts elsewhere. Now the consensus for Apple is too optimistic, according to UBS Group AG. That represents a risk for the largest company in the market at a time when it is already trading at a premium to the Nasdaq 100.

Brian Frank, chief investment officer at Frank Funds, called the lack of estimated cuts “a flashing red light” for investors.

“I see no reason why Apple’s estimates shouldn’t be lowered by the same scale as technology in general, and since it trades at a multiple above 20, this seems like a huge risk,” he said. “Given their global exposure and the fact that consumers are facing a tough environment due to inflation, I don’t see anything to get excited about. I think there’s a lot more downside risk to mega-caps.”

Analysts expect earnings of $6.29 per share for Apple in 2023, an estimate that has only declined 2.6% over the past quarter. To compare, estimates for 2023 have fallen 5.8% for Microsoft in the same period, 5.6% for Alphabet and 14% for Amazon. Companies that supply Apple have also seen estimates slashed: Skyworks Solutions Inc.’s forecast 2023 profit has fallen 11% over the past month, while Qorvo Inc.’s estimates are down more than 20%. Both reported last week.

For the broader tech sector, data from Bloomberg Intelligence shows analysts expect 2023 earnings to fall 0.2%, compared with 8% growth expected three months ago.

Apple is trading at about 22 times estimated earnings, above its 10-year average of 17 and the Nasdaq 100 multiple of 19.7. If the consensus estimate were lowered further, lowering the denominator in the price-earnings equation , Apple would assess as more expensive than it is currently.

“It’s overvalued relative to the rest of the technology, even if there’s something to be said for its cash flow and brand name,” said Jim Worden, chief investment officer at Wealth Consulting Group. “The big question is how much growth could slow, as I think a recession will hurt Apple more than analysts project. I like it as a long-term play, but I have no idea if we’re close to bottoming out and in the short term there’s going to be a lot more volatility ahead.”

Tech chart of the day

Cathie Wood’s ARK Innovation ETF is a long way from its pandemic-era heyday as rising interest rates and rotation of high-value, high-growth tech stocks resulted in a 72% selloff During the past year. However, that has created an ideal environment for the AXS Short Innovation Daily ETF, which tracks the inverse performance of Wood’s fund. The fund has more than doubled since its launch a year ago.

Featured Tech Stories

  • Covid cases have more than doubled in the central Chinese city of Zhengzhou, dampening hopes authorities will lift a lockdown of the area surrounding the world’s largest iPhone factory.

  • Nvidia Corp., the most valuable US chipmaker, has started producing a processor for China that complies with new rules aimed at limiting that country’s access to AI computing.

  • Nintendo Co. cut its forecast for the fiscal year for sales of Switch video game consoles by 10% to 19 million after reporting earnings in line with expectations.

  • German chipmaker Elmos Semiconductor SE said the country’s economy ministry is likely to block the sale of its wafer facility to a Swedish subsidiary of China’s Sai MicroElectronics Inc. after previously indicating the deal would be approved.

  • Renault SA is deepening its collaboration with Alphabet Inc.’s Google in a bid to extend remote software update capabilities to new vehicle models such as the electric Megane E-Tech and Austral. “We want to make the car a smart object that learns and can be updated over the air like a mobile phone,” said Renault chief executive Luca de Meo.

  • Lyft Inc. fell more than 15% in extended operations after reporting weaker-than-expected growth in ridership, signaling it is losing ground to rival Uber Technologies Inc. in a rocky recovery from the pandemic. .

(Updates to the open market).

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