5-star analysts deliver a blunt warning about Apple's stock

Apple's stock performance in 2023 was so strong, and its impact on the market is so enormous, that it spearheaded the Magnificent 7, a collection of technology companies considered primarily responsible for most of the S&P 500's returns in 2023.

However, the company's recent performance has left many investors disappointed. Even as many stocks enjoyed a late-December rally, Apple shares have slid nearly 9% since mid-December, leaving many holders scratching their heads wondering what could happen next.

Now, Apple's recent selloff has caught the eye of prominent Wall Street analysts, including Piper Sandler's Harsh Kumar and Barclays's Tim Long. Kumar and Long are 5-star rated by TipRanks for their predictions, so paying attention to their most recent opinions on Apple shares could pay off.

Apple: dominant consumer electronics giant

Apple has always been considered a consumer electronics pioneer for its focus on user-friendly and aesthetically designed products. 

In the 1980s, the launch of its Macintosh computer turned heads for its graphical user interface and simple and durable mouse. In 2001 Apple's iPod revolutionized how we listen to music, and in 2007 the iPhone ushered in the smartphone era.

The iPhone is undeniably Apple's  (AAPL) - Get Free Report most significant product. It sells plenty of MacBooks, Apple Watches, and iPads. Still, the iPhone and the related App Store are largely responsible for turning Apple into the biggest U.S. company, with a nearly $3 trillion market capitalization and the S&P 500's second-largest holding, accounting for 6.8% of the benchmark index.

Related: Key investor says one Magnificent 7 stock will be valued at $4 trillion next year

Since it launched, Apple has sold more than 2.3 billion (yes, billion) iPhones globally, including nearly 100 million iPhones in the first half of 2023. Last quarter, the company's fiscal fourth quarter, iPhone sales accounted for $44 billion, or 49%, of Apple's $90 billion in revenue. Meanwhile, services revenue, which includes the App Store, clocked in at $22 billion, or 24%.

Perhaps unsurprising, given those numbers, Apple is the U.S. smartphone market-share leader. It accounted for 53% of all smartphone shipments last quarter, according to Counterpoint. Its global market share, while smaller, is still a very healthy 21%. For perspective, Samsung's U.S. and worldwide market shares are 25% and 16% respectively.

Apple iPhone dominance hits a snag

It's a good thing to be the market-share leader. However, it's hard to continue growing when you're already the biggest player in a market.

Though the company launched its new iPhone 15 lineup ahead of the crucial holiday shopping season, Wall Street analysts are increasingly worried that iPhone sales will disappoint.

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Barclays's Long is among the most concerned. He issued a rare underperform rating on Apple stock. That's analyst-speak for "sell." 

Long, whom TipRanks rates in the top 3% of Wall Street analysts, says Barclays's channel checks show iPhones are moving more slowly off shelves than in the past.

“We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounceback in Macs, iPads and wearables,” says Long. “The biggest takeaway from the latest checks is incrementally worse [iPhone] 15 data points out of China, together with developed markets remaining soft.”

Weakness in China isn't good news, given the sheer size of that market. IDC reports 67 million smartphone shipments there in the third quarter. Apple's lackluster performance may not be surprising. The company has come under fire there since announcing plans in 2022 to build factories elsewhere to insulate its supply chain against the risk of China and U.S. trade tensions escalating. 

Last year China reportedly instructed government workers to swap Apple iPhones for competing devices made there, including those from Xiaomi and high-end phones made by Honor, which commands a 19% market share in China.

Piper Sandler's Kumar also sees iPhone weakness as a potential drag on Apple's stock performance this year. He's ranked better than 99% of the analysts tracked by TipRanks. 

"We are concerned about handset inventories entering into [first-half 2024] and also feel that growth rates have peaked for unit sales," says Kumar. "Difficult [comparisons] from 2023 paired with constant currency headwinds are expected to continue in 1H24 with interest rates remaining elevated.”

During its earnings conference call last quarter, Apple said that China sales had slipped 2.5% to $15 billion. Management also painted a lackluster picture for the all-important holiday quarter, saying revenue would be flat versus one year earlier. 

Investors will learn if that downbeat forecast was correct when Apple reports results on Jan. 25. 

Long isn't optimistic. He lowered his Apple price target to $160. Kumar still thinks Apple could experience gains, but he dropped his rating to neutral and cut his price target by $15 a share to $205, which is hardly reassuring.

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