Apple Inc. (AAPL) is a stock that barely needs an introduction. It stands as being a worthy contender for the most valuable company in the world. Presently its market capitalization stands at $2.4 trillion. Holding such a position in the market comes with strong advocates for both the bearish and bullish positions.
Understandably, Apple, the first company to break the $1 trillion, $2 trillion, and $3 trillion market capitalization milestones, has a significant scale of operations and is a globally renowned brand. The innovation through which the company has designed, manufactured, and delivered its various product classes has put it at forefront of the consumer electronics realm.
As an investment opportunity, Apple had largely gained the reputation as a ‘no-brainer stock’; It did not require much analysis to determine whether or not one should invest in it. Its seemingly unstoppable growth charts make it highly attractive amongst market players. However, its recent performance has led many to question whether or not it still maintains its position as a market favorite. Presently trading over 20% below its ATH, achieved in January 2022, there is a growing concern surrounding the stock. Market pessimists foresee AAPL’s bullish rise finally flattening out. The question on everyone’s mind is, is Apple still the mighty bull as the world had always known it to be? Or is the stock finally changing tides, and entering into a bearish zone? It is precisely this question that we attempt to answer.
The Bearish Case for Apple
Apple’s most concerning aspect is the slowdown its stock price has been experiencing amidst the broader macroeconomic slowdown. The last six months alone have brought in a price fall of almost 24%. In comparison, the S&P 500 dipped by only 16% during the same time. This picture seemingly shatters the once-held market belief of AAPL being a safe haven stock.
Although the stock was not alone in this mass sell-off, nor was its recent fall a result of its own doing, there is an indication that even Apple is no longer immune to wider uncertainties. This does not bode well for the stock, especially when considering the present inflationary conditions. To make matters worse, record-high inflation levels have plagued markets, along with clear indicators of a looming recession.
Supply Complications
Analysts however did foresee the company’s growth eventually slowing down following the easing of Covid-19 restrictions. As individuals returned to work, with many ditching the remote work setup, Apple’s computing equipment demand returned to more stable levels. Even at the height of demand, the company faced a myriad of supply chain challenges. This had set off a chain of events that, in part, led to a global chip shortage. The result was the loss of opportunity for revenue amounting to billions of dollars.
Moreover, the supply-side issues have only worsened for Apple; the full extent of this will be seen in its FY22Q3 release. The reason for this is the Covid-related lockdowns ongoing in China, where the bulk of Apple’s supply units is established. As a direct consequence, Apple is faced with Silicon shortages which are centered around the Shanghai corridor. CEO Tim Cook places the supply value of these constraints as high as $8 billion.
The core challenge which Apple still faces is on the macro front. Given the nature of its business, which many describe as delivering luxury products, it stands to lose quite a bit. Market volatilities, inflation, and interest rate hikes each impact consumer spending and levels of disposable income. This had been evident in the recent YoY climb in Apple’s FY22Q2 operating expense margin from 14.6% to 16.2%.
The Bullish Case for Apple
The most obvious indicator that AAPL still is the go-to investment, is its present target price. Analysts have set the stock’s target at $189, which is an impressive 33% increase from its current price of $142. This optimistic outlook appears to rest on the company’s future opportunities that it focuses on capturing. After concerns by the wider market of iPhone sales ‘ leveling off’, Apple is aiming at a successful launch of its ‘next big thing’.
Apple’s Smart Phone on Wheels
Several reports dating back to 2014 suggest the company planning an autonomous smart car, dubbed ‘Project Titan’. This had been also hinted at by CEO Tim Cook, who described the project as “the mother of all AI projects”. Images have also been surfacing in the public domain, which seemingly points to the company collecting road data for its electric vehicle software. Speaking to insiders working on Project Titan, Reuters confirmed in 2020 that the company fully commits to moving on with its smart car concept, which would involve next-generation battery technology.
Many market participants report that the launch will be publicly made by 2025, which would be a renewal of Apple’s commitment to innovation.
Bears would challenge this optimism by the macroeconomic circumstances which have been impacting Apple’s stock movements. However, the company’s financial position remains ever robust, with its recent quarter delivering a net income of $25 billion, and a Free Cash Flow figure of $25.7 billion. Apple seems to be in a position to fund its next major venture, having sufficient capital needs.
In efforts to cushion its business performance against macroeconomic market volatilities, Apple has entered into a ‘buy now pay later’ model. Market participants have applauded the move, including the CEO of Klarna Bank, who described the move as being “ extremely recession-proof”. The reason Apple does this so well is because of an underwriting structure that is far more flexible than those of credit card companies or other banks. Moreover, it would essentially hold a reliance on small consumer balances for this to work. This shows that the company has been taking a proactive approach against circumstances that have been impacting the wider market. Apple clearly aims to thrive despite what the wider macroeconomic environment throws its way.
Verdict
If there’s one ideal that defines Apple, it is its commitment to consistently innovating. This broader vision makes the company’s offerings far too valuable to ignore, even during times of crisis.
The apple share price may be feeling the panic-induced impacts of the market, but its financial position remains highly robust. It continues to exceed analyst expectations, despite the bleak outlook and holds sufficient capital to fund its next mammoth innovation projects.
Moreover, there is no doubt as to the scale of challenges the company faces on the macro front. However, its strategic response to this, which allows its customers greater payment flexibility essentially sets up its business as being “recession-proof”
I do believe Apple’s downward dips are temporary, and the panic surrounding the stocks remains unsubstantiated. The bullish rise for the stock is inevitable. I am confident with this position, especially when considering the company’s capability to dynamically tackle challenges head-on, without compromising on innovation.
