Apple’s historic sell-off has bulls wary about taking on tariff risks
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Investors are trying to assess how tariffs and a slowdown in one of Apple’s major growth markets will impact spending and the stock price.
PHOTO: AFP
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A sharp sell-off in shares of Apple illustrates investor scepticism about its ability to navigate US President Donald Trump’s tariffs on China, Vietnam and India – countries all critical to the iPhone maker’s supply chain.
Its shares dropped 19 per cent in the wake of last week’s tariffs announcement,
“The tariff situation really complicates things for Apple. What is it going to do? Raise prices? That will hit demand. Absorb costs? That will hurt earnings and margins,” said Mr Anthony Saglimbene, chief market strategist at Ameriprise Financial Services. “It is very difficult to assess prospects from here, and that’s why the market has reacted the way it has.”
The risk became more acute with the threat on April 7 of another 50 per cent tariff after China retaliated against previous tariffs with one of its own on US imports. The extra tariff has since been imposed.
Wall Street analysts and investors are trying to assess how tariffs and a slowdown in one of Apple’s major growth markets will impact margins, spending and the stock price.
“The way Apple goes will influence the whole market,” said Mr Saglimbene. “Without a deal on tariffs, it is hard to make a near-term case for Apple moving higher.”
Apple has long been viewed as a relative haven given its strong free cash flow, balance sheet and robust buyback activity, all of which derive from the massive global user base for its products. But the tariff uncertainty now is overwhelming.
The CBOE Apple VIX, which tracks a market estimate of future volatility for the stock, has spiked to its highest since September 2020. Still, many analysts remain positive on the firm’s prospects, especially in the wake of the historic sell-off, which Bank of America said represented an “enhanced buying opportunity”.
Based on the average analyst price target, they expect the stock to rise more than 30 per cent over the coming 12 months, the highest implied return in more than two years. The stock’s 14-day relative strength index fell under 23 this week, among the lowest readings over the past decade, and under the 30 level that generally suggests oversold conditions.
Shares are also trading about 24 times estimated earnings for the next 12 months, near their lowest in more than two years, though still at a modest premium to their 10-year average.
“Now the froth is out and I think it looks attractive,” said Mr Andrew Zamfotis, portfolio manager at Ami Asset Management Corp. “Yes, there is a lot of uncertainty, but given how much this sell-off prices in, I think it should be pretty stable from here.”
What happens with tariffs is the central question facing the stock. Should Apple get an exemption, as it did during the first Trump term, it could see a huge relief rally.
The tariffs staying in place or being escalated, on the other hand, would represent “economic Armageddon”, according to Wedbush Securities analyst Daniel Ives, who recently cut his price target on the stock.
Given the uncertainty, and possibility of an exemption, analysts have held off on making dramatic changes to their estimates. The consensus on Apple’s net 2025 earnings has dipped 0.7 per cent over the past week, according to data compiled by Bloomberg, while the view for revenue is down less than that. Should estimates get cut dramatically, that would have the effect of making the stock appear more expensive by shrinking the denominator in the price-to-earnings ratio.
The next major company catalyst investors will be watching is Apple’s quarterly earnings report, due on May 1. According to Mr Pat Burton, a portfolio manager at Winslow Capital Management, this will likely be a catalyst for estimates changing.
“Based on the magnitude of the moves out of these stocks, the market’s anticipating a negative revision from basically every tech company,” he said. “People will cut their forward-looking numbers for the June and September quarters. And in a sense, 2025 will be a washout loss year.” BLOOMBERG
