ABC News Today

The status of Apple Inc. as a relative haven in this year’s bear market is under threat amid growing concerns that iPhone sales are weakening, portending further declines in tech stocks in general.

Over the weekend, the Cupertino, California-based company said that Covid-related lockdowns in China would cause shipments of its newest premium phones to be lower than previously expected. Bloomberg News also reported that due to weaker demand, Apple expects to produce at least 3 million fewer iPhone 14s this year than expected.

Shares rose 0.6% on Tuesday, bringing their year-to-date decline to 21%. The Nasdaq 100 index is down 32%. Other major technology and Internet stocks, including Microsoft Corp., Amazon. com Inc. and Alphabet Inc. — are down between 32% and 46%.

Apple was the only megacap to bounce back from its results this quarter, and the report prevented analysts from sharply cutting earnings estimates, in contrast to widespread cuts elsewhere. Now the consensus for Apple is too bullish, according to UBS Group AG. That represents a risk for the market’s largest company at a time when it’s already trading at a premium to the Nasdaq 100.

Brian Frank, chief investment officer at Frank Funds, called the lack of estimate cuts “a flashing red light” for investors.

“I don’t see any reason why Apple’s valuations won’t be cut on the same scale as tech in general, and since it trades at a multiple of more than 20, that looks like a massive risk,” he said. “Given its global exposure and the fact that consumers are facing a difficult environment due to inflation, I don’t see anything to get excited about. I think there’s a lot more risk to the downside for the megacaps.”

Analysts expect earnings of $6.29 per share for Apple in 2023, an estimate that has declined by just 2.6% over the past quarter. By comparison, 2023 estimates have fallen 5.8% for Microsoft over the same period, 5.6% for Alphabet and 14% for Amazon. Companies that supply Apple have also seen estimates cut: Skyworks Solutions Inc.’s 2023 earnings forecast. have fallen 11% over the past month, while estimates for Qorvo Inc. they are down more than 20%. Both reported last week.

For the overall technology sector, data from Bloomberg Intelligence shows that analysts expect 2023 earnings to fall 0.2%, compared with 8% growth expected three months ago.

Apple trades at around 22 times estimated earnings, above its 10-year average of 17 and the Nasdaq 100 multiple of 19.7. Should the consensus estimate fall further, reducing the denominator of the price-benefit equation, Apple would show more. more expensive than it is currently.

“It’s overvalued relative to the rest of tech, even if there’s something to be said for its cash flow and brand,” said Jim Worden, chief investment officer at Wealth Consulting Group. “The big question is how much growth could slow, as I think a recession will hurt Apple more than analysts anticipate. I like it as a long-term play, but I have no idea if we’re close to hitting funds and in the short term there will be much more volatility ahead.”