In 2023, Apple (NASDAQ:AAPL) stock showcased an impressive 49% gain, surpassing the Nasdaq Composite’s returns. However, it emerged as the weakest FAANG constituent for the year. The beginning of 2024 has not brought favorable news for the tech giant, with three brokerages downgrading the stock within the year’s first two weeks. This unusual turn of events prompts a closer look at the 2024 predictions for Apple stock and the reasons behind analysts adopting a bearish stance.
Why Did Apple Stock Lag in 2023?
In fiscal year 2023, Apple reported negative revenue growth in all four quarters, marking the first time since 2001 that its revenues fell year-over-year for four consecutive quarters. The company’s commentary on the revenue outlook for the December quarter failed to instill confidence, forecasting revenues “similar” to the corresponding quarter of the previous year. This was in stark contrast to its FAANG peers, who impressed markets with robust results following the 2022 crash.
Apple Stock 2024 Predictions and Analyst Ratings
Of the 28 analysts covering Apple stock, 15 rates it as a “Strong Buy,” 3 as a “Moderate Buy,” 9 as a “Hold,” and 1 as a “Strong Sell.” Among FAANG stocks, Apple is the second lowest-rated, only behind Netflix (NASDAQ:NFLX). Despite a mean target price of $205.15 representing a premium of over 10% to its current stock price, recent downgrades by Redburn, Piper Sandler, and Barclays have sparked concerns.
Why Analysts are Turning Bearish on AAPL
Analysts are growing increasingly bearish on Apple due to apprehensions about a prolonged slowdown in iPhone sales, particularly in China, the company’s third-largest market. Intense competition from domestic Chinese smartphone manufacturers like Huawei and Xiaomi, along with Huawei’s resurgence after U.S. restrictions, has posed challenges for Apple. In response to soft demand, Apple is offering limited-time discounts on iPhone 15 models in China.
In contrast to Apple, its FAANG peers navigated challenges in 2023 effectively. Netflix addressed growth concerns through innovative strategies, Meta Platforms implemented aggressive cost cuts, Amazon focused on cost reductions, and Alphabet countered headwinds through cost-cutting measures and benefited from the digital ad market recovery.
Considerations for Potential Investors
While Apple is trying to tap into the Indian market and introduce augmented reality headsets, analysts express skepticism about these measures compensating for the slowdown in iPhone sales. Regulatory challenges, such as a U.S. ban on some Apple Watches due to a patent dispute and ongoing antitrust concerns, add to the uncertainties.
The primary risk identified for Apple is its elevated valuation, trading at over 28 times its next 12 months’ earnings. This valuation exceeds pre-COVID-19 pandemic levels, and analysts believe that significant growth drivers do not justify the current multiples. Despite being recognized as a long-term investment, caution is advised for potential investors due to unfavorable short-term risk-reward dynamics at current price levels.
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