Apple Inc. (NASDAQ: $AAPL) is an American consumer electronics manufacturer and software company that makes PCs, smartphones, tablets, and wearable tech and sells several related services. Its product categories include iPhone, iPad, Wearables, Mac, Home, and Accessories. Founded in 1976, Apple has a market cap of $2.67 trillion, making it one of the biggest companies in the world by market cap.
Recently, the company was forced to pay out $490 million to settle a lawsuit after its CEO made comments regarding its sales in China. The company could also face potential blowback if the US Senate passes the recent TikTok ban bill that had overwhelming support in Congress.
Apple Settles Lawsuit for $490 Million
In 2019, investors filed a lawsuit against Apple, accusing its CEO, Tim Cook, of making misleading comments regarding its China sales.
The CEO made the comments during an investor call on November 1, 2018, when he told investors that the company was struggling in Brazil, Russia, India, and Turkey. He added, “I would not put China in that category.”
Cook went on to say that sales in China had increased 16% in the previous quarter, adding that “iPhone in particular was very strong, very strong double-digit growth there.”
However, the company told its supplier to slow production just days after the CEOs’ comments. Later in 2019, the company cut its revenue forecast for the year’s first quarter, blaming it on a slump in sales in China due to rising trade tensions between the US and China.
According to Yahoo Finance, Apple agreed to settle the lawsuit for $490 million, which is around 2 days of profit for the company, based on the $97 billion net income reported for fiscal 2023. However, the company did not admit any wrongdoing.
Apple Buys AI Startup As It Explores Geminin AI Partnership
According to a Friday, March 15, 2024, report by Bloomberg, Apple has purchased another AI startup. The giant tech company bought DarwinAI, based in Canada, although neither company has publicly announced the sale.
According to data from LinkedIn, several of DarwinAI’s former employees joined the Apple machine learning team at the start of this year. The startup specializes in vision-based tech to improve efficiency during manufacturing.
While Apple and DarwinAI haven’t announced this deal, several of the startup’s team joined Apple’s machine learning teams in January, per their LinkedIn profiles.
Apple has lagged behind peers like Google, Microsoft, and Meta when it comes to generative AI. In February, CEO Tim Cook revealed that the company would introduce various AI features to its customers later in the year.
Recently, Bloomberg reported that Apple was exploring the o use Alphabet’s Gemini in its iPhones. The company already has a deal with Alphabet to use Google as the preferred search engine on the Safari browser. While Apple has been working on its own internal AI tools, the recent revelations suggest that these efforts might not have enjoyed the success they were expecting thus far.
Looming TikTok Ban Could Impact Apple and Other US Tech Companies
On Wednesday, March 13, 2024, the US Congress passed a bill that could lead to the potential ban of TikTok in the US. With the bill headed to the Senate, analysts believe it could have a huge impact on tech giants like Tesla, Apple, and Nvidia.
Gene Munster, a financial analyst at Deepwater Management, forecasts a 50% chance that nothing happens to TikTok, a 25% chance that ByteDance divests in the company, and a 25% chance that it gets banned.
According to Munster, if TikTok is banned or ByteDance divests, China could make similar spying allegations regarding US tech companies. The result would be retaliation against tech companies operating in China.
Munster noted that China accounts for nearly 23% of Tesla’s revenue, 18% of Apple’s revenue comes from China, while Nvidia gets around 8% of its revenue from China.
Dan Ives, a financial analyst at Wedbush, echoed similar comments, also forecasting a 25% chance that TikTok will get banned.
Critics of the bill have argued that American tech companies also engage in data collection at a more invasive scale than TikTok. They also note that if China wanted access to US data, they could simply purchase it from data brokers.
Apple Stock Performance and Forecast
Apple (AAPL) has not been able to replicate the success of 2023 when it climbed around 48% at the end of the year. Since the start of 2024, Apple stock is down around 7.01% to $172.62 per share. The main reason for the slump is the slowing down of iPhone sales in China.
Despite the slump, one analyst believes that AAPL has nearly 31% upside potential in the next 12 months. According to Wamsi Mohan, a securities analyst at Bank of America, the stock could rise to $225.
Overall, 26 financial analysts give AAPL stock a moderate buy rating. They forecast a broad target for the stock, with a high of $250 and a low of $158 in the next 12 months. Their average price target is $204.86, an 18.68% upside based on the last closing price.
Should You Buy AAPL Stock?
Counterpoint Research released a report recently, which showed that iPhone sales were down 24% Y/Y in the first six weeks of 2024. That is the main issue dragging down the stock. However, Apple has options for dealing with the slump.
One of their easiest solutions is to lower the price of older models to keep demand high. With Apple consumers’ long-term trend of shifting to high-end devices, it could offset the weak sales numbers from China.
Another important point to note is that after the dramatic rise in 2023, AAPL stock was due for a correction. At the end of 2023, the stock was trading at a P/E ratio of 32, which has since come down to a reasonable 26.45, still above the market average.
Additionally, despite losing nearly a quarter of its sales in China, its EPS grew 16% Y/Y in its most recent quarter, driven by rising revenue in higher-margin services and its ongoing share buyback program.
It is also worth noting that the company has some of the biggest cash reserves of any major company, with total cash of $73.1 billion and operating cash flow of $116.43 billion as of its last financial results. Consequently, Apple has a large moat to absorb any short-term headwinds and will continue to be a lucrative investment opportunity over the long term.
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