2. Apple Inc (NASDAQ:AAPL)
Number of Hedge Funds Investors: 158
Jim Cramer in a latest program on CNBC mentioned the reasons behind the latest decline in Apple Inc (NASDAQ:AAPL) shares. Cramer believes the threat of tariffs has been impacting Apple negatively.
“CEO Tim Cook committed to spending $500 billion in the United States over the next four years. Some are telling me that’s not a real narrative, but that’s wrong. They say it was planned ahead of time, and that’s wrong too. I say, who cares? The commitment is terrific. Hey, a lot of that could have gone to India, but Apple couldn’t get any sort of immunity. Of course not. They could be hurt by tariffs tomorrow, which seems wrong to me. Maybe that’s why Apple stock got hammered today. When I searched for any reason, any reason at all, the only explanation I could come up with was tariffs. Sure, Apple’s an American company, and it’s going to make a lot of things here, but it gets a substantial number of its parts from Taiwan and manufactures a huge amount of its products, like cell phones, in China. Because of the president’s somewhat arbitrary nature, it’s very hard to own Apple right now. You don’t know if the president is going to attach tariffs to Taiwan’s stuff or more tariffs than the People’s Republic of China. Are there any assurances he won’t? What will that do to Apple’s gross margins? Can it afford margin deterioration when the stock trades at 33 times earnings? That’s why the stock went down. These are the musings of someone who actually likes the stock very much, who says own it, don’t trade it, and thinks the company is sensational. I just cringe now when the president talks about this stuff again, not because I’m against tariffs—I’m in favor of tariffs, I like targeted tariffs.”
Apple’s latest quarterly results were helped by Services revenue in the latest quarter, but the key challenges haunting the company remain as they were. Many analysts believe just a few AI apps would not be enough to trigger a broader upgrade cycle for iPhone. Apple is dealing with currency headwinds as the stronger US dollar is expected to reduce top-line growth by 2.5% next quarter. For Q2 FY2025, management expects overall revenue to grow in the low to mid-single digits. Apple’s stock is trading at a premium valuation, with a price-to-earnings ratio of 39-40x, a price-to-free-cash-flow ratio of 33-34x, and a PEG ratio exceeding 3x. Upcoming quarters would be difficult for Apple and its current valuation is not justified.
Tsai Capital stated the following regarding Apple Inc. (NASDAQ:AAPL) in its Q4 2024 investor letter:
“We initiated our investment in Apple Inc. (NASDAQ:AAPL) in 2016 and elevated it to a core holding in 2018, the same year the company introduced its redesigned 13-inch and 15-inch MacBook Pro models. Under Tim Cook’s visionary leadership, Apple has consistently redefined innovation in hardware and software.
The September 2024 launch of the iPhone 16, with its groundbreaking AI capabilities, including enhanced image generation tools, marks another inflection point. We believe this transformative device is the foundation for an AI-driven supercycle and could entice approximately 100 million consumers to upgrade, reinforcing Apple’s leadership in the industry.
Today, Apple’s ecosystem spans over two billion active devices, supported by a rapidly-growing base of subscription services. This strategy has helped to turbocharge customer engagement and spending. In the most recent fiscal year, which ended in September 2024, Apple’s high-margin services division accounted for 39.3% of total gross profits, up from 32.8% just two years ago.
