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Apple's Future Outlook: A Storm Brewing?

Plus500 | Thursday 05 October 2023

A series of events is leading some to conclude that shares of one of the biggest names in the global tech industry, Apple (AAPL), are headed for stormy waters. Let’s take a closer look at why FAANG company Apple might be missing a bite:

volatile stock price charts

Stock Downgrade

KeyBanc Capital Markets, an American firm specialising in investment advisory services, recently downgraded Apple from an "Overweight" to a "Sector Weight" rating, expressing concerns about the company's valuation and anticipated decline in iPhone sales. While “Overweight” denotes a share that has high potential to perform well in the future, “Sector Weight” may indicate analysts’ predictions that the company in question has somewhat less rosy prospects. The analysts highlighted that Apple's stock is trading at high multiples, currently at 26.3x next year's earnings compared to the historical average of 23.5. This valuation is notably higher than the NASDAQ's (US-TECH 100) tech-oriented shares.

Moreover, KeyBanc presented insights from their analysis of 1.8 million of their American customers, indicating low upgrade rates and unappealing initial iPhone promotions offered by carriers. They believe these factors could pose challenges for Apple's future sales performance. Additionally, global sales prospects aren't wholly positive either, with concerns about the aggressive expectations regarding international expansion and Wall Street estimates for Apple's financial performance weighing on forecasts.

The analysts emphasised the importance of user growth over unit growth but noted a lack of near-term catalysts, potentially resulting in “a neutral risk/reward scenario.” This assessment may have been the catalyst for Wednesday’s slight pre-market drop in the value of Apple shares. However, by the ring of the closing bell on October 4th, Apple rose by over 0.6%. 

Whether KeyBanc’s insights will be borne out remains to be seen, as in 2023 to date, Apple shares have gained more than 33% in value. This tech industry leader has been diving straight into the white-hot generative artificial intelligence (AI) sphere, but time will tell what surprises the overall tech industry may have in store going forward.

Apple stock price chart since the beginning of 2023 up until October 5th 2023

Search Engine Rumours Swirl

In recent revelations from the ongoing US government antitrust trial against Alphabet’s (GOOG) Google, it was disclosed that Apple had discussions with DuckDuckGo to potentially replace Google as the default for those conducting internet searches while on Apple's Safari browser's incognito mode. DuckDuckGo, which is an internet privacy company, is known for its privacy-focused search engine that doesn't track users or store their search history.

According to Gabriel Weinberg, CEO of DuckDuckGo, there were about twenty meetings and phone calls between DuckDuckGo and Apple executives in 2018 and 2019 regarding the possibility of DuckDuckGo becoming the default search engine for Safari's private browsing mode. 

However, the talks did not result in DuckDuckGo gaining this coveted status. Apple executive John Giannandrea, who oversees search at Apple, stated that to his knowledge, Apple did not seriously consider switching to DuckDuckGo. Giannandrea expressed concerns about DuckDuckGo's reliance on Bing for search information and believed that DuckDuckGo's claims about privacy might not align with the details, as using Bing likely involves sharing user information with Microsoft (MSFT).

Furthermore, it was revealed that Apple also explored the idea of using Microsoft's Bing search engine as the default for Safari. In 2018 and again in 2020, Apple held discussions with Microsoft regarding a potential joint venture or sale of Bing to Apple. In these talks, Microsoft expressed a willingness to give up on billions in USD if Apple made Bing the default search engine on Safari.

These discussions may have shed light on the competitive landscape and relationships between major tech companies regarding default search engine agreements. The US Department of Justice alleges that Google has engaged in anti-competitive behaviour by paying billions to companies like Apple to secure its position as the default search engine on various platforms, hindering potential competition from alternatives like Bing and DuckDuckGo. The ongoing trial aims to address antitrust concerns related to Google's market dominance in the search and advertising sectors. (Source:Bloomberg)

All in all, Apple continues to capture financial news headlines the world over for a plethora of reasons. While its share price has continued to rise in recent months, storm clouds may be gathering on the horizon. What the final months of 2023 have in store for this trailblazing firm is anyone’s guess. 

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