(Bloomberg) -- Apple Inc. shares have had a challenging start to 2025, as investors fret over weakness in the critical Chinese market.
The shares fell for five straight sessions before Monday’s bounce, in the longest losing streak since April. They’ve been pressured by China smartphone data, which analysts said pointed to weaker iPhone shipments, and a Reuters report that Apple is offering discounts in China.
The stock slipped as much as 1% in Tuesday trading, hurt by a downgrade to sell at MoffettNathanson, which cited the company’s weakening position in the Asian country along with other issues.
“The Chinese market, important as both an end market and the heart of the supply chain, is vexing,” analysts led by Craig Moffett wrote. Apple is not only losing market share among Chinese consumers, but also faces a potential trade war that may mean the company, “integrated into China like no other American firm, might exhaust its political capital and still not completely avoid ill effects.”
The poor performance of late indicates that investors who had looked past a lukewarm response to the artificial intelligence-infused iPhone and tariff-related risks under the incoming Trump administration may have lost patience.
“It increasingly seems like China just won’t be there as an avenue for growth at Apple, given an overall weaker smartphone market, competition from Huawei, and the risk of tariffs,” said David Wagner, portfolio manager at Aptus Capital Advisors. Wagner said he wouldn’t be surprised if the stock’s recent weakness continues throughout the year, given its elevated valuation.
Shares are down some 2.3% so far in January, compared with a gain of around 2% for the Nasdaq 100 Index. And its performance is crucial to the overall market: Apple accounted for about 9% of the S&P 500’s 23% rally last year, making it the second-biggest contributor to index gains behind Nvidia Corp.
The drop comes after the shares rose more than 30% in 2024. The stock hit a record high in December, when investors were betting that Apple will ultimately become a winner in AI and that Chief Executive Officer Tim Cook would be able to overcome any tariff threats.
But concerns about China have fomented negative sentiment in recent sessions. The report of discounts on iPhones in China reflects how market conditions in the country “have been plagued by a slowdown in consumer spending as well as increased rivalry from Huawei,” according to Bloomberg Intelligence.
Meanwhile, the Chinese data on smartphone shipments is not a good sign for the iPhone 16 cycle, analysts at Barclays wrote, referring to the first model of the smartphone to offer AI features.
The greater China region is meaningful for Apple, accounting for 17% of fiscal 2024 revenue, according to data compiled by Bloomberg. The US accounted for 36%. Analysts see $21.7 billion in greater China revenue in the first quarter, according to four estimates compiled by Bloomberg.
“Apple’s heavy reliance on China is a concern and has been for a couple years. It is a sizable consumer market, so obviously weakness there is a risk,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors. “China is also a major manufacturing hub, and while Tim Cook has taken steps to diversify production, our deteriorating relationship with China has been a risk even before we got this new talk of tariffs,” he added.
The severity and timing of tariffs under President-elect Trump is still a big unknown. Restrictions are expected to particularly target China, where the majority of Apple’s devices are made. While there is optimism that Cook will manage this risk, as he did during Trump’s first term, Jefferies analysts calculated that a worst-case scenario could add $256 of cost per iPhone.
The stock could be vulnerable to such risks given its valuation. Apple trades at more than 32 times estimated earnings, above its long-term average and higher than the Nasdaq 100 Index at around 27 times. It is more expensive than Microsoft Corp. and not far off Nvidia, both of which are expected to deliver much stronger growth this year.
Apple’s most recent quarterly report showed a decline in China revenue last quarter, adding to concerns about its overall growth trajectory. Sales growth has been negative in five of the company’s past eight quarters, and while it’s expected to pick up next year, the pace is seen below that of other megacaps, according to estimates compiled by Bloomberg.
“I don’t expect this to be a top-performing stock among peers this year, but given the size of the installed base and its steady cash flow, I don’t see a ton of downside risk relative to peers,” Cresset’s Ablin said.
Tech Chart of the Day
Nvidia rallied 3.4% on Monday to close at a record high of $149.43 ahead of CEO Jensen Huang’s keynote at the CES trade show in Las Vegas. The stock, which added more than $120 billion in market value on Monday, wavered in Tuesday trading after the company announced a raft of new chips, software and services, aiming to stay at the forefront of AI computing.
Top Tech Stories
- Jensen Huang outlined Nvidia’s products and strategy to his audience of hundreds for more than 90 minutes, including tie-ups with Toyota Motor Corp. and MediaTek Inc. that sent their shares higher. The company showed an update to its GeForce GPUs which Huang said will create even more realistic experiences for computer gamers.
- Meta Platforms Inc. elected three new directors to its board, including Ultimate Fighting Championship Chief Executive Officer Dana White, one of the media industry’s most influential executives and a high-profile campaigner for US President-elect Donald Trump.
- Microsoft Corp. plans to spend $3 billion to expand its cloud computing and artificial intelligence capabilities in India, targeting the world’s most populous country to fuel its revenue growth.
- The US has blacklisted Tencent Holdings Ltd. and Contemporary Amperex Technology Co. Ltd. for alleged links to the Chinese military, targeting the world’s biggest gaming publisher and top electric-vehicle battery maker in a surprise move weeks before Donald Trump takes office.
- Venture capitalists put $97 billion into AI startups in the US last year — a new record in a year of multibillion-dollar megarounds for companies like Elon Musk’s xAI, OpenAI and Anthropic.
Earnings Due Tuesday
- No major earnings expected
--With assistance from Subrat Patnaik.
(Updates trading throughout. Adds MoffetNathanson comment in the fourth paragraph.)
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