In recent months, investors have become more hesitant to take a bite out of Apple (NASDAQ:AAPL) and add it to their portfolios. That’s not surprising. Macro worries may be weighing on all of the “Mag 7” stocks, but in the case of Apple stock, blame it more on company-specific issues.
Namely, continued weak demand for iPhones, especially in China. Increased regulatory scrutiny has also affected the stock’s performance. At the onset of AAPL’s steady slide in price, factors like excitement about the company’s AI prospects may have helped to mitigate declines.
However, with the market taking a breather with its excitement about the generative AI growth trend right now, there’s little out there preventing this stock from getting out of its present slump.
Why Apple Stock is Not So Magnificent Right Now
Admittedly, Apple has not been the worst-performing “Magnificent Seven” stock this year. That “honor” goes to Tesla (NASDAQ:TSLA). However, being “second-worst” is nowhere near being one of the best. It’s merely the second stock making up what one could call “the not-so-magnificent two.”
There have been substantive reasons behind the market’s bearish-leaning view on Apple stock. As discussed above, iPhone demand remains weak, and that’s putting it nicely. Per market researcher IDC, iPhone sales fell by 9.6% year-over-year last quarter. The key reason for this has been big declines in Chinese iPhone sales.
Apple is struggling to compete with China-based smartphone makers like Huawei. In response to the latest disheartening iPhone sales news, analysts have made downward revisions to forecasts. For instance, Needham’s Laura Martin has lowered both her estimates for the preceding quarter, as well as for the current and upcoming fiscal years.
Maxim Group’s Tom Forte currently rates AAPL a “hold,” but has many concerns about the company’s near-term prospects. Per Forte, China-related headwinds will continue. Overall iPhone sales will move even lower, and there’s great uncertainty about AI slow-mover Apple soon making a big breakthrough in that fast-growing area of the tech sector.
Downside Risk More Substantial Than You Think
The market may lean bearish, but optimism about Apple stock hasn’t fully gone away. A good example is with Wedbush analyst Dan Ives. Ives believes that any major update about Apple’s gen AI plans could move the needle for AAPL.
However, with enthusiasm cooling for even the AI early-movers among major tech stocks, Ives may be overly optimistic about how much Apple’s “AI catch-up” will have on price performance. Worse yet, coupled with this questionable near-term upside potential, is the fact that downside risk with Apple may be fairly substantial.
Here’s what I mean. Currently, AAPL is trading at around 25.8 times forward earnings. Yes, many “Mag 7” stocks trade at a premium compared to Apple, but this valuation arguably incorporates the potential for the company to swiftly recover from its current slump as a high probability.
If weak results continue, the market could call this valuation into question.
That’s not all. Don’t forget the aforementioned regulatory headwinds. These are coming both from the U.S., as well as the European Union. As Morningstar’s William Kerwin recently argued, investors have reacted negatively to headlines related to this factor. Presumably, subsequent headlines will elicit a further negative reaction.
Skip AAPL, Stick to More Promising Tech Plays
So, how far do we think AAPL could fall from here before the dust settles? It’s doubtful that Apple will tumble to a value stock multiple soon, but a slide down towards a forward valuation in the low-20s is well-within the realm of possibility.
Why? That’s what some previously-underperforming “Mag 7” stocks were trading for, before their 2023 rebounds. At 20 times forward earnings, Apple would trade for around $131.20 per share. In other words, around 22% below current price levels.
Until this happens, or until the many “worms” afflicting Apple stock begin to fade, it may be best to skip on it, and go with the more promising big tech contenders out there.
Apple stock earns a D rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.