Bull Concedes Apple's Stock Pressure Will Last for Months

Apple Inc.'s stock has recently endured a seven-session losing streak, resulting in a 12% decline since the beginning of the year. While this may raise concerns, a Citi Research analyst, Atif Malik, suggests that the downward pressure on Apple shares might persist leading up to the company's WWDC developer event in June. Despite sluggish smartphone demand, Malik envisions the event as a potential "AI catalyst" that could drive positive momentum for AI smartphone demand through 2025.

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Despite the challenges, Malik maintains a buy rating on Apple shares, albeit with a slight adjustment to his price target from $225 to $220 in his latest client note. His reservations primarily stem from certain data points related to China, a critical market for Apple.

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Counterpoint Research's third-party data indicated a significant 24% decline in iPhone unit sales in China during the initial six weeks of the year. Furthermore, Apple's apparent increase in aggressive discounting strategies to stimulate sales has caught Malik's attention. Specifically, during the International Women's Day sale, Apple offered a discount of approximately $180 on the iPhone 15 series, surpassing the $120 discount provided on the iPhone 14 series last year.

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Malik also delved into his analysis of U.S. third-party data, revealing a 6% decrease in foot traffic to sampled U.S. Apple Stores during the first two months of 2024 compared to the same period in the previous year.

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Despite these challenges, Malik remains optimistic about Apple's future performance, highlighting the potential for "structural gross-margin expansion due to premiumization supported by AI smartphones and services growth." His positive outlook centers on the belief that AI smartphones will be the next battleground for smartphone manufacturers. Apple, currently holding a substantial 75% market share in the premium phone market, is expected to unveil generative AI features during the WWDC event to reinforce its dominance in the high-end segment.

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Malik predicts that these features may include AI tools designed to simplify coding processes, showcasing Apple's commitment to innovation and maintaining its position as a leader in the premium smartphone market. While acknowledging the current challenges, the focus on AI and premiumization provides a strategic direction for Apple to navigate the evolving landscape of the smartphone industry.

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