Apple Inc. currently boasts the slowest revenue growth among Big Tech giants and faces potential tariff-related challenges as Donald Trump begins his second term. Yet, these factors haven’t hindered the stock’s performance. 
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Apple’s shares have surged by almost 10% in the past month, positioning it as one of the top performers among the “Magnificent 7,” second only to Tesla Inc. This recent surge comes despite a lukewarm reception to the latest iPhone model and a disappointing earnings report in late October. Investors appear remarkably unperturbed by these headwinds, as evidenced by the CBOE Apple VIX (which tracks estimated future volatility) recently reaching its lowest point in nearly a year.
Navigating Geopolitical Uncertainty and Tariff Concerns
“It’s perplexing that the stock is performing so well given the current state of China and the escalating geopolitical tensions,” observes Andrew Choi, portfolio manager at Parnassus Investments. “It’s surprising the stock hasn’t experienced greater volatility, considering these are existential issues impacting a significant portion of Apple’s business.” Manufacturing in China
While the precise severity and timing of tariffs under President-elect Trump remain uncertain, restrictions are anticipated to primarily target China, where the majority of Apple’s devices are manufactured. Although there’s optimism that CEO Tim Cook will navigate this risk effectively, as he did during Trump’s first term, Jefferies analysts estimate that a worst-case scenario could add $256 to the cost of each iPhone.
iPhone Demand and the AI Revolution
Any additional tariff-related costs would pose a significant challenge for Apple, which has already encountered lackluster demand for its AI-powered iPhone. This dampened hopes that the new models would spark a long-awaited resurgence in growth. New iPhone Model Revenue growth has been negative in five of the company’s past eight quarters. While growth is projected to recover next year, the pace is anticipated to lag behind other megacaps, according to Bloomberg estimates.
“The anticipated boost from the iPhone 16 replacement cycle hasn’t materialized, with expectations now shifted to the iPhone 17,” notes Richard Clode, a portfolio manager for Janus Henderson Investors’ Global Technology Leaders Fund. “The market, having been overly bearish earlier this year, is now potentially too optimistic.”
Investor Optimism and Apple’s AI Strategy
Despite these concerns, some Apple investors remain undeterred. They’re wagering that Apple will ultimately emerge as a victor in the AI landscape and that Cook will successfully circumvent most of the tariffs imposed on China. They also appreciate the stock’s defensive qualities.
Unlike Microsoft Corp., Meta Platforms Inc., Alphabet Inc., and Amazon.com Inc., which are investing tens of billions of dollars in AI infrastructure, Apple is not allocating as much capital expenditure toward AI. Instead, Apple is expected to leverage the spending of others, as major AI platforms compete for integration into Apple’s ecosystem.
“Apple will be the conduit through which AI reaches millions of consumers,” asserts Choi of Parnassus Investments. AI Technology “They possess a significant advantage by controlling the gateway between AI and the consumer.”
Valuation Concerns and Future Outlook
Apple also exhibits strong fundamental characteristics, including substantial free cash flow and consistent buybacks, according to Greg Halter, director of research for Carnegie Investment Counsel. Financial Data Chart
While Halter considers Apple his largest position, he acknowledges trimming it due to concerns about valuation and growth. He also expresses skepticism about AI iPhone demand.
“It’s expensive, and there’s no denying that unless you firmly believe a supercycle in AI iPhones will significantly boost revenue and earnings growth in the coming years,” Halter states. “The question remains: what will drive the stock higher from here?”
Currently, Apple’s shares trade at nearly 33 times forward earnings, a premium of over 50% compared to their 10-year average. This high multiple has prompted some investors, including Warren Buffett’s Berkshire Hathaway Inc. and various hedge funds, to reduce their Apple holdings. Less than two-thirds of analysts tracked by Bloomberg recommend buying the stock, making it notably less popular than other megacaps. While only three out of 60 analysts recommend selling, the average price target of around $243 suggests limited upside potential in the next 12 months.
Conclusion: A Balancing Act
Apple’s stock performance presents a paradox: strong market sentiment despite sluggish growth and looming tariff risks. Investor confidence in Apple’s ability to navigate these challenges and capitalize on the AI revolution appears to be the driving force behind the stock’s resilience. However, concerns surrounding valuation and future growth prospects remain. The coming months will be crucial in determining whether Apple can justify its current valuation and deliver on its potential.
