Apple (AAPL) Stock: Should Investors Be Worried?

It is rare to start a piece with a disclaimer, but before I go any further, I should make it clear that I own Apple (AAPL) stock. That isn’t particularly surprising, though. Just about everyone who owns equities does, whether through a large cap growth fund or an index ETF. I also have a long-term position in the individual stock, which not everybody has, but the fact that the price of AAPL affects just about every investor to some extent makes it worrying when we see the kind of drop that we have witnessed to start this year. As worrying as it is right now, though, it is hardly surprising, nor is it something that is likely to continue for any significant length of time. It has come about largely because of a couple of downgrades by Wall Street analysts. This morning, Piper Sandler cut its rating to neutral from overweight, following a cut to underweight from Barclays yesterday. Neither of those names is massively influential, of course, and Barclays for one has been wrong on AAPL for some time. They had maintained a price target for the stock of $161, a level not seen since March of 2023, so I’m not sure why anyone is paying that much attention to them cutting that price target by a whole dollar to $160. Still, the fact is that the well-publicized downgrades seem to have prompted a roughly five percent drop in the stock over the last couple of days. That kind of move in a mega-cap stock can only come when institutional investors sell, but it is unlikely that the big boys, who all have their own research teams, care much about what Piper Sandler or Barclays think. However, if they were already looking to sell for some reason, reports of a downgrade by anyone would get a reaction, and that is what seems to be happening here. The question is why might they be looking to sell? There are two possible reasons for that. It could be because they believe the outlook for Apple has changed significantly, but that isn’t really the case. iPhone sales have been flat for a while, but last year’s optimism about Apple was about projections, not current sales. What hasn’t changed is that there is one thing that will drive growth over the next few years: AI. Apple does not have a great direct AI product at this point, but that isn’t the point. What they do have is the world’s most popular mobile device and a loyal customer base. If history is our guide, AI will be in the mobile space before long, and that will mean a need for product upgrades for most Apple users. Given that, a flat period of sales for iPhones is probably more about pent up demand than saturation or stalling overall growth. The other possible reason for institutional sales, and a far more likely one, is some profit taking and new year rebalancing. This is a stock that easily beat the broad market in 2023, gaining over fifty percent, so most portfolios will have ended the year overweight AAPL in dollar terms. That makes some position trimming almost inevitable, and any news that could be seen as negative, even a reiteration of an opinion that has been wrong for nine months, will trigger some action. Then, when the stock falls, others will rush to trim their own positions, prompting the kind of acceleration of the down move that we are seeing this morning. In short, what this looks like at this point is a normal, healthy retracement in a stock that has outperformed for an extended period of time, the kind of retracement that is often called a consolidation, and which sets up for further gains in the future. At some point, I guess, Apple will become so big that it must cease to grow. However, over the last twelve years of writing at Nasdaq.com, I've heard multiple times that point has been reached and, so far, while the bears may have had an occasional month or so in the sun, every pullback has been a buying opportunity for long-term investors like me. I don’t see why this time should be any different. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Apple (AAPL) Stock: Should Investors Be Worried?

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