This Apple Is Full of Worms

Shah Gilani|January 12, 2024

It’s a tale of woe… and a warning.

And in the end… you won’t want to take a bite of this apple.

At the end of June 2023, Apple (AAPL) made history as the first company ever to be valued at $3 trillion when its stock price closed above $193.42 for the first time.

But in July, Apple reversed course. It started making lower highs and lower lows in a descending channel that took the stock down to an intraday low on October 26 at $170.65.

Yet the stock, along with all equity benchmarks, caught fire and rocketed higher through year-end.

To the outside world, Apple’s early rise in 2023 was due in part to its status as a megacap tech darling and part of the “Magnificent Seven.”

Its fall from late summer through October 2023 looked like profit-taking on the Fed’s insistent “higher for longer” narrative.

And then the November-December rally that took Apple to yet another all-time (intraday) high of $199.62 was credited to a Fed reversal. The Fed’s narrative went from “higher for longer” to “expect cuts in 2024.”

That’s what investors saw on the outside.

But on the inside, worms were starting to tarnish Apple’s shine.

A Sour Apple

2023 was awful for Apple. The company disappointed in its last four fiscal quarters.

All of them.

Revenues contracted in each of the last four quarters.

And iPhone sales were underwhelming, missing in each quarter.

The hoped-for “refresh” sales spike never happened, maybe because there’s nothing really fresh about the iPhone 15.

The company was hit with an embarrassing patent infringement suit over its alleged pilfering of the technology driving an oxygen sensor in its Apple Watch.

And at the start of 2024, Apple got a downgrade from Barclays…

Then another from Piper Sandler, which said that “growth rates have peaked for unit sales.”

Apple now has only 33 “Buy” or equivalent recommendations. Its Magnificent Seven cohorts have far more. Amazon has 68… Meta has 66… Nvidia has 59. None of the other Magnificent Seven stocks have been downgraded.

Only Apple.

And then there’s China.

Bad News Any Way You Slice It

The U.S. and China are in a digital cold war. Apple’s already taking flak.

The U.S. is restricting advanced AI-driving chip sales to China and is successfully pressuring allied governments around the world to do the same. Hard-line pressure – including diplomatic bashing of China’s biggest Apple competitor, Huawei Technologies – has been going on for years.

Last summer, while the U.S. trade representative was in China, Huawei introduced its latest smartphone and iPhone competitor, the Mate 60.

The slap in the face to America wasn’t that the phone was sleek. It’s that it was fast. It’s made with new chips – not from U.S.-based Nvidia, but from Chinese chipmaker SMIC.

Here’s one big reason Apple’s iPhone sales are sliding. China is pressuring its consumers to buy Chinese-made phones. They’re banning Apple phones from government agencies and state-owned and state-controlled companies.

Huawei’s smartphone market share in China was 11% in 2022. At the end of 2023, it was 24%.

That growth came at Apple’s expense…

In 2022, Apple got about $74 billion, or 19%, of its total revenue from China. 2023 figures aren’t out yet. But you can count on that number falling off a cliff.

Apple’s got worms eating it from the inside out. And its stock is going to lose its luster.

Shares have minor support at $180, which is also the 200-day moving average. Below that, there’s support around $166. And below that, there’s support at $145. That’s where the stock gathered itself back in March 2023.

But the ugly possibility exists that Apple could fall as far as $120… its low level from January 3, 2023.

What a difference a year makes. Apple’s in trouble. You’ve been warned.