Shares of Apple
What is behind the pop in their share prices in the last week? Two guesses:
- Lowered growth expectations.
- Vague announcements name-checking AI buzzwords.
I have contacted Apple and Tesla with requests for comment and will update this post if I receive a reply.
Apple’s Lowered Growth Expectations And AI Announcement
Apple stock was down 11.3% for the year as of April 22 while the Nasdaq rose about 7%. A week later, the iPhone-designer’s shares have risen 5% off the bottom.
What is behind the slide in Apple’s stock? Here are three Apple woes lowering investor expectations:
- Weak iPhone upgrades. Recent iPhone upgrades have not boosted unit sales. The current iPhone 15 family is “leading the third consecutive cycle of weak sales; analysts project a 1% drop in global iPhone unit sales for the current fiscal year following a 4% decline last year and a gain of only 1% in fiscal 2022,” according to a Wall Street Journal report featuring consensus estimates from Visible Alpha.
- Rivals are gaining ground on Apple in China. Huawei Technologies smartphone sales are winning customers rapidly in China — which accounted for about 19% of Apple’s revenue. Huawei’s smartphone unit sales rose 70% in the first quarter of 2024 while Apple’s slid 19%, according to a Counterpoint report featured in the Journal.
- The U.S is aiming to open Apple’s closed ecosystem. The federal government is trying to open Apple’s App Store to rivals and to challenge Google’s big payments to Apple to make the company’s search engine the default on “mobile devices including the iPhone,” the Journal wrote.
Apple has tried to diversify its products from the iPhone. For example, last summer, hype abounded for the company’s Vision Pro mixed-reality headset — driving Apple’s valuation above 30 times earnings, noted the Journal.
That valuation has since dropped to about 25. With Apple poised to report earnings on May 2, word that the company is in talks with OpenAI to provide customers with an iPhone powered by ChatGPT may be contributing to a rise in the company’s stock price, according to Bloomberg.
This AI iPhone announcement sounds vague to me, with analysts not putting a number on how much revenue could be forthcoming. TD Cowen said AI features could prove significant. JP Morgan predicted the iPhone 17 will include AI features in 2025, noted Apple Insider.
Tesla’s Lowered Growth Expectations And AI Announcements
Tesla stock was down 43% this year, as of April 22. A week later, the shares popped by 31%. As I wrote two weeks ago in a Forbes post, three forces drove down Tesla’s stock:
- Tesla delivered far fewer vehicles than expected and forecasts more disappointment.
- Tesla appeared hesitant about winning over value-sensitive buyers — leaving that segment of the market to lower-priced rivals such as BYD.
- Tesla’s pivot to Robotaxis has little chance of restoring revenue growth.
On April 23, Tesla reported terrible earnings and the stock soared. Here are the key numbers:
- Q1 2024 revenue: $21.3 billion — down 9% and about $900 million below the London Stock Exchange Group consensus, noted CNBC.
- Q1 2024 adjusted earnings per share: 45 cents — down 38% and six cents a share below the LSEG consensus, wrote CNBC.
- Q1 2024 net income $1.13 billion — down 55%, CNBC reported.
- Q1 2024 free cash flow: negative $2.53 billion — a reversal from the previous year’s positive $441 million, noted CNBC.
- 2024 volume outlook: pessimistic — Tesla told investors its “volume growth rate may be notably lower than the growth rate achieved in 2023,” according to CNBC.
Why has Tesla’s stock risen since then? The answer could be two vague announcements:
- New vehicle launch. Tesla’s April 23 investor presentation hinted at new vehicles — “including more affordable models.” What’s more, Tesla predicted its existing production capacity would enable the company to boost by more than 50% its vehicle output before investing in new manufacturing lines, noted CNBC. These new models — to be launched in early 2025 — marked a retreat from “more ambitious plans to produce an all-new model that had been expected to cost $25,000,” noted Reuters. Rather than an automaker, Elon Musk told investors, Tesla “should be thought of as an AI robotics company,” Reuters reported.
- China tentatively approves Tesla’s “Full Self-Driving” launch there. Tesla’s China sales fell about 4% in the first quarter of 2024 while the Chinese EV market grew 15%. Local rivals such as BYD — which led the world with more than three million EVs produced in 2023, Nio, and Xpeng have “ramped up their competition with Tesla in recent years,” noted CNBC. Wedbush called Musk’s visit to China to discuss FSD a “watershed moment,” the Journal reported.
It is unclear whether or when these announcements will translate into higher revenues and profits for Tesla or if they will become another of Musk’s unrealized hopes.
A case in point among many is Tesla’s Cybertruck — which launched to much hype in November 2023 only to suffer an April 2024 recall of 3,878 of the vehicles “to repair or replace faulty accelerator pedals,” noted the Journal.
I am skeptical about whether the vague announcements by Apple and Tesla will boost revenues in the foreseeable future. Yet I am expecting Apple’s May 2 earnings report to feature some comments that propel its stock upward.