Source: Zhitong Finance

With$Apple (AAPL.US)$The stock price's quarterly performance relative to the S&P 500 index is at its worst level in more than 10 years, and traders are looking for signs that the worst may be over. According to the data, as the S&P 500 index rose, Apple's return in the first quarter fell 21 percentage points behind, which is the worst performance of this indicator since 2013. However, the magnitude of the decline was close to the key support level of 165 US dollars. This was the low hit in October last year, when the general market also bottomed out and rebounded. Apple's 12% decline since the beginning of the year has rewarded short sellers, giving them the motivation to close their positions. Technical analysts say the stock is hovering at a level where it is likely to be bought on dips. This lag may make Apple seem cheap compared to other big tech companies.

Without taking advantage of the AI Dongfeng, Apple's valuation failed miserably

Investors looking to invest in the next big growth market have turned their attention to artificial intelligence.$NVIDIA (NVDA.US)$It's replacing Apple as a tech giant worth owning, as the demand for chips for large language models seems never-ending.

Apple's stock price fell by more than 10% this year, evaporated about 330 billion US dollars in market capitalization, and ceded the status of the world's highest company by market capitalization to Microsoft. Microsoft is starting to boost its revenue growth by integrating ChatGPT into products such as Office software.$Microsoft (MSFT.US)$The current market capitalization is close to $3.1 trillion, while Apple's market capitalization is $2.7 trillion. In the arms race for artificial intelligence computing power, Nvidia, which had a sharp rise in revenue and profit, followed with a scale of 2.2 trillion US dollars.

The problem isn't that Apple has suddenly stopped growing; this has been going on for a while — despite repeated new highs in the stock price, Apple's revenue declined every quarter of the previous fiscal year. The problem is that at a time when iPhone sales are sluggish and the company is facing increasing regulatory threats, the company is not performing well in terms of artificial intelligence. “We're experiencing an incredible wave of innovation,” said Mark Lehmann, CEO of Citizens JMP Securities. The market tells you that Apple has a lot to prove, but so far, they haven't proven much.”

As we all know, Apple keeps very little secrets about plans to include artificial intelligence services in its products. Apple CEO Cook promised that Apple will “forge a new path” in the field of artificial intelligence this year. Market professionals expect major news at Apple's annual software developer conference in a few months. However, many investors are losing patience and turning to stocks with a clearer path to AI development.

At the heart of Apple's predicament is the loss of revenue growth. The company's first major new product category, Vision Pro headsets, launched in nearly a decade, and is not expected to contribute significantly to growth in the next few years. Apple recently abandoned its long-standing effort to make electric cars. Meanwhile, due to a weak economy and increased competition, iPhone revenue has stagnated, and sales in China have declined.

According to data compiled by Bloomberg, sales fell 3% in fiscal year 2023, and are expected to grow by only 2% this fiscal year. In comparison, the company saw a 33% increase in revenue in 2021. Meanwhile, Nvidia and Microsoft are expected to increase sales by 79% and 15%, respectively, this fiscal year.

Being watched by bears

Since this year, Apple's market value has evaporated by more than 300 billion US dollars, ceding the status of the company with the highest market capitalization in the US to Microsoft (MSFT.US). Reasons for the fall in Apple's stock price include falling sales in China, regulatory scrutiny of the Apple App Store, and growing investor concerns about its growth prospects.

In recent trading days, Apple's stock price once fell below 170 US dollars. A break below this level and holding it may indicate a fall back to the October low of $165.67. It closed at $170.03 on Monday.

As shares of peers such as Nvidia, Meta Platforms, and Amazon continue to rise, shorters are turning to Apple. According to data from data analysis company S3 Partners, Apple is the second-most profitable short position this year, with book profit of 2.4 billion US dollars. This may give them some incentive to close their positions, and although the size of open short positions hasn't changed much, it's lower than last year's level.

Without AI, is Apple a value stock “like Coca Cola”?

In the past 20 years, no company has been able to reflect the future of the stock market better than Apple. It transformed from a niche computer manufacturer to the world's most valuable company, making its stock the cornerstone of a global portfolio. But in the blink of an eye, Apple's light began to fade. Artificial intelligence is now the story of the tech world, and Apple lags behind other tech giants in terms of artificial intelligence.

This has left Apple investors in a daunting position. The company's revenue growth has stagnated, and its stock performance is about 16 percentage points behind the Nasdaq 100 Index, the worst starting year since 2013. The company will still be able to generate huge revenue, but it is unknown whether it will continue to grow at the rate expected by investors. Apple executives say they have ambitious plans for artificial intelligence, and bulls hope this will help revive Apple's growth. But until now, it has been difficult to predict its future.

All of this makes investors wonder what role the stock is playing today if Apple's artificial intelligence dream doesn't come true?

Phil Blancato, CEO of Ladenburg Thalmann Asset Management and Osaic's chief market strategist, said: “It has become more like a value stock, a bit like Coca Cola. For the foreseeable future, everything you want will provide you with defensive assets and market returns until they have a new catalyst.”

Apple's “safe-haven attribute”: rich cash flow and attractive dividends

Craig Johnson, chief market technician at Piper Sandler & Co. said, “No one wants to sell their Apple positions because of dividends, large-scale share buybacks, and no one wants to pay capital gains tax on this. I don't think the stock price will drop much from its current level. The greater risk is that Apple's stock price may hover between $165 and $200 until it can decisively break the long-term moving average.”

As Apple's stock price falters, traders are increasingly worried that tech stocks may face pressure in the coming months — even if Nvidia dominates. Apple's performance hit a new low compared to the $260 billion Invesco NASDAQ 100 ETF, which tracks the Nasdaq 100 index. This seems to indicate that the momentum differentiation between technology stocks and the market has formed, and growth stocks have weakened under the surface.

That being said, Apple has traditionally been a safe-haven deal due to its strong business model and cash flow. Nancy Tengler, CEO of Laffer Tengler Investments Inc., said that despite facing challenges in China, Apple's large-scale repurchase plan means that for long-term investment managers, Apple stock still has potential to rise.

After Nvidia's stock price soared more than 80% in 2024, people are increasingly worried about how long the AI boom will last, but Mark Newton, head of technology strategy at Fundstrat Global Advisors, said Apple should not drag down the S&P 500 index unless it breaks the multi-year upward trend since the 2020 low.

Piper's Johnson said that if other tech stocks don't perform well, it may even push investors back to Apple. Johnson said, “If traders sell Nvidia, will they buy Apple instead? I often hear this from customers. Investors love to trade one 'Magnificent Seven Powers' stock for another.”

Apple remains a reliable money-making machine, as always. It's certainly a shareholder-friendly cash flow giant and a safe haven with a bulletproof balance sheet. Kevin Walkush, portfolio manager at Jensen Investment Management, said: “If you're a long-term investor and really like steady, steady growth. This is like an annuity. Profit margins are growing, profitability is constantly improving, the business generates large amounts of cash, and there is still plenty of room for innovation. We think Apple is a good choice.”

Despite Apple's disappointing performance this year, it's easy to assume that Apple's stock price is expected to rebound, and it's too early to exclude it from the AI race. The company has more than 170 billion US dollars in cash on its balance sheet, and net profit is expected to exceed 100 billion US dollars this year. This has given Apple unrivaled resources to enter new markets and return cash to shareholders through dividends and share repurchases.

Walkush of Jensen Investment Management said, “It's hard not to compare it to current popular companies. If you get rid of artificial intelligence and popular stuff right now, will people look at Apple in a different light? I think they will.”

edit/lambor