To The Moon

While the US stock market is booming, the once-mighty $Apple(AAPL)$ stock is continuously falling. Its year-to-date decline is as high as 11.64%, far outpacing the $NASDAQ(.IXIC)$ 's 6.18% gain, and lagging behind tech giants like $Microsoft(MSFT)$ $Alphabet(GOOG)$ $Alphabet(GOOGL)$ $NVIDIA Corp(NVDA)$.

What's going on with Apple?

From recent news, it seems that Apple is facing two major setbacks.

First, the EU fined Apple approximately $2 billion for allegedly imposing unfair rules on music streaming app developers for iPhone.The fine is one of the largest antitrust penalties ever imposed by the EU, and the market worries that the battle between the two is just beginning.

Second, according to the latest weekly sales tracking report from market research firm Counterpoint Research, the overall sales of China's smartphone market fell by 7% compared to the same period last year in the first six weeks of 2024. Among them, Apple's sales dropped by a whopping 24% year-on-year, while Huawei's sales surged by 64%.

Tech giants being slapped with heavy fines by regulators is nothing new. In 2017, the EU fined Google $2.7 billion for violating EU competition regulations. That fine broke the previous record of a €1.06 billion fine imposed by the EU in 2009.

Interestingly, the impact of the fine on Google's stock price was almost nil. The reason behind this is that fines are one-time events that don't change the fundamental business of a company.

So, even if the EU ultimately fines Apple, it won't have a significant impact on its stock price.

Dilemma in China!

The decline in Apple's sales in China is indeed worrying, but the Greater China only contributes 17.4% of Apple's revenue. Meanwhile, Huawei's impact on Apple is limited to China, with no effect on other regions.

Unfortunately, Apple's performance in other regions isn't great either. Analysts predict that Apple's revenue growth in the America is expected to be 0.1% in the first quarter of this year, significantly slower than 2.3% of the previous quarter.

Europe's revenue growth is expected to decline by 6.2%, far below the 9.8% growth in the previous quarter. Japan's revenue growth is expected to decline by 12.3%, compared to the previous quarter's 15% growth. Asia Pacific and other regions are expected to see a revenue decline of 9.9%, compared to the previous quarter's 6.6% growth in the previous quarter.

In contrast, analysts predict that revenue growth in the Greater China will decline by 7.5%, which is better than the 12.9% decline in the previous quarter:

It seems that Apple's weak performance is not solely due to sluggish sales in China, as other regions are also facing similar issues. The reasons behind this may be related to high inflation, sluggish global economic growth, and decreasing product appeal.

Regardless of the reasons, Apple's performance has been lackluster in recent quarters, with revenue growth hovering around 0%.

Share prices and stock repurchase

Despite its weak earnings, Apple's stock price surged 48% last year, with its P/E ratio hitting a high of 33 times, nearing its peak during the 2020 bull market. Even after its recent decline, Apple's P/E ratio is still a lofty 26.5 times.

With a high valuation and sluggish earnings, it's only natural for the stock to decline. The EU and US fines, as well as Huawei's competition, have merely accelerated this process.

To counter the decline, Apple's best bet is still repurchasing its own shares. After all, its newly launched Vision Pro isn't exactly a game-changer, and with its car-making ambitions shelved, Apple lacks any blockbuster product announcements.

Apart from repurchases, Apple can only hope that AI phones and AI PCs will spark a wave of upgrades. Unfortunately, following Apple's usual schedule, the new phones are expected in September, and while the AI PCs might be a bit faster, considering that there are no killer apps yet, the concept of AI phones and AI PCs is just hype.

It seems that Apple's stock might only find its footing again when its valuation returns to a reasonable level.