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Apple Faces Tariff Threats Amidst Slumping Growth Prospects

Apple shares dropped as new tariff threats emerged from Trump. Manufacturing in the U.S. is deemed costly, while reliance on Indian production risks tariffs that could diminish demand.

Date: 
AI Rating:   4

Tariff Threats and Manufacturing Shifts
Apple is currently navigating a precarious situation influenced by President Trump's proposed tariffs of at least 25% on iPhones manufactured outside the U.S. This poses significant risks as Apple has been transitioning some production to India, aiming to manufacture the majority of iPhones destined for the U.S. there by 2026. If these tariffs become a reality, it may not only lead to a considerable increase in prices but also risk a decline in demand from consumers who may find these elevated prices prohibitive. The uncertain nature of this tariff situation, combined with potential manufacturing costs in the U.S., leaves investors wary.

Revenue Growth and Market Position
Despite being a technology leader, Apple is witnessing stagnation in its iPhone sales, with total iPhone revenue flat year-over-year for the six months leading up to March 29. The launch of the more affordable iPhone 16e has yielded little improvement, overshadowed by fears of potential price hikes from tariffs. Furthermore, the lack of compelling upgrades for current iPhone users further exacerbates this challenge of revenue growth.

Dependence on Google Revenue
Adding to the risk landscape is Apple's substantial dependency on its partnership with Google, which brings in about $20 billion annually to Apple’s services segment. Loss of this deal could severely impact Apple's net income, significantly curtailing the profitability of its services division which is projected to exceed $100 billion in revenue this fiscal year. With ongoing antitrust issues faced by Alphabet, there exists a looming uncertainty regarding the future of this lucrative arrangement.

Valuation Concerns
Given Apple's current economic challenges, including minimal revenue growth and increasing risks, the company is trading at a high valuation—approximately 27 times earnings with expectations for fiscal 2025. This valuation is surprising, especially considering the slowing growth rate when compared to peers like Microsoft and Nvidia, which are benefiting from an upsurge in AI demand. Investors need to assess whether such a premium is justifiable amid the increasing risks posed by tariffs and revenue instability. Ultimately, the potential for a declining economy could heighten these challenges for Apple, making investment in its stock a risky proposition.

Stocks:  AAPL GOOGL