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Apple (AAPL) stock is usually seen as a relatively defensive name among its “Magnificent 7” peers and tends to fall less than other Big Tech companies in a market crash. Notably, AAPL was the best-performing stock of the coveted group in 2022 when tech stocks crashed. While the stock closed in the red, the drawdown was less than that of other Magnificent 7 stocks, which fell sharply that year.
However, President Donald Trump’s reciprocal tariffs – which took effect today, April 9 – have disproportionately impacted Apple, as it gets most of its revenues from sales of gadgets whose imports are now subject to tariffs. The fact that China, where the bulk of its products are made, is slapped with a104% tariff, makes things only worse for Apple.
Apple stock is down nearly 20% over the last five trading days, extending its YTD drawdown to over 28%.
While Apple stock is getting butchered and drifting towards its 52-week lows, should you buy the dip or does more downside lie ahead for the iPhone maker? We’ll discuss this in this article.
What Do Trump’s Tariffs Mean for Apple?
The landed cost of an iPhone assembled in China would double after Trump’s over 100% tariffs. Apple would have little choice but to pass on the higher costs to buyers even as it might try to absorb some of the shock by paring some of its fat gross margins.
Either way, the tariffs are bound to hit Apple’s top line as well as bottom line as passing off higher prices to buyers would take a toll on the company’s sales, especially given the already challenging macro environment.
Then there are knock-on effects of Apple losing out business in other countries as consumers might retaliate against U.S. companies amid the nationalistic reaction against the tariffs. This is particularly true of China where consumers have anyways been shying away from U.S. brands hurting names like Nike (NKE), Ford (F), as well as Apple.
To sum it up, Trump’s tariffs will hit Apple’s supply chain, making it costly to import products in the U.S., which is its biggest market. Moreover, Apple – which was already losing market share in China to domestic brands – might face the ire of Chinese consumers.
Analysts Slash AAPL’s Target Price
Apple was out of favor with sell-side analysts even before the tariffs and faced three downgrades in January. Amid the escalating trade war, several brokerages including Morgan Stanley, KeyCorp, and Bank of America have slashed Apple’s target price this month. Dan Ives of Wedbush who had the Street-high target price of $325 on Apple, also cut his forecast to $250. The tech analyst also slashed Tesla’s target price due to what he said was an “economic tariff Armageddon unleashed by the Trump Administration.”
Overall, Apple has a consensus rating of “Moderate Buy” from the 36 analysts actively covering the stock while its mean target price is $250.69. I believe more analysts will slash Apple’s target price in the coming days even as it is tough to quantify the impact of the tariffs on the company’s earnings.
Should You Buy the Dip in Apple Stock?
Apple has lost its $3 trillion market cap and the title of the world’s biggest company to Microsoft (MSFT).
While Apple’s valuation multiples have corrected and it now trades at a forward price-earnings (P/E) multiple of around 26x, these are based on current earnings estimates, which will go haywire if the tariffs remain in place for more than a few weeks.
I believe analysts will start slashing Apple’s earnings estimates, but the company’s valuation multiples would also take a hit from the trade war. Overall, while it may seem tempting to buy the dip in Apple, it would be prudent not to go overboard given the uncertainty over tariffs.
