Apple’s Rally Is Unabated by Sluggish Growth and Tariff Risks

(Bloomberg) — Apple Inc. has the slowest revenue growth among Big Tech stocks and is facing tariff-related risks going into Donald Trump’s second term. None of that is holding back the stock.

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The shares are up almost 9% in the past month, making Apple the second-best performer in the so-called Magnificent 7 after Tesla Inc. during the period. The recent gains come despite a tepid response to the latest iPhone model and a disappointing earnings report in late October. Investors seem remarkably calm about these headwinds, with the CBOE Apple VIX — which tracks estimated future volatility — recently touching its lowest in nearly a year.

“It is definitely a head scratcher that the stock is doing so well with China being in the state it’s in, and with the geopolitical face-off we’re entering,” said Andrew Choi, portfolio manager at Parnassus Investments. “It’s surprising the stock hasn’t been more volatile given these are existential issues involving a material part of its business.”

The severity and timing of tariffs under President-elect Trump remains unclear, but restrictions are expected to particularly target China, where the majority of Apple’s devices are made. While there is optimism that Chief Executive Officer Tim Cook will manage this risk, as he did during Trump’s first term, Jefferies analysts calculated that a worst-case scenario could add $256 of cost per iPhone.

Any extra tariff-related costs would come at a bad time for Apple, which has seen lukewarm demand for its artificial intelligence-powered iPhone, dashing hopes that the new models would lead to a long-awaited re-acceleration of growth. Revenue growth has been negative in five of the company’s past eight quarters. While it’s expected to pick up next year, the pace is seen below that of other megacaps, according to estimates compiled by Bloomberg.

“The hoped-for iPhone 16 replacement cycle boost has not materialized, with expectations pushed back to the iPhone 17 now,” said Richard Clode, a portfolio manager for Janus Henderson Investors’ Global Technology Leaders Fund. “The market, having skewed too bearish earlier this year, is probably a bit too optimistic here.”

Some Apple investors don’t seem fazed. They’re betting that Apple will ultimately come out as a winner from AI and that Cook will again manage to dodge most of the tariffs imposed on China. They also like the stock’s defensive traits.

The company isn’t dedicating as much in capital expenditures toward AI, especially in comparison with Microsoft Corp., Meta Platforms Inc., Alphabet Inc., and Amazon.com Inc., which are dropping tens of billions of dollars building out their AI infrastructure. Instead, Apple is expected to benefit from others’ spending, as major AI platforms vie to be incorporated into Apple’s ecosystem.

“Apple is going to be how AI is brought to millions of consumers,” Parnassus Investments’ Choi said. “It is so advantaged by owning the chokepoint between AI and the consumer.”

The company also offers significant quality characteristics, including massive free cash flow and steady buybacks, according to Greg Halter, director of research for the Carnegie Investment Counsel.

He counts Apple as his largest position, though said he has been trimming it given concerns over its valuation and growth. He’s also skeptical on AI iPhone demand.

“It is expensive, and I don’t see how you can argue that it isn’t, unless you really believe a supercycle in AI iPhones is going to really bump up revenue and earnings growth over the coming years,” Halter said. “Really, what is going to drive the stock higher from here?”

The shares trade at nearly 33 times forward earnings, more than 50% above their 10-year average. In a sign of how the multiple is causing some to sour, Warren Buffett’s Berkshire Hathaway Inc. has been slashing its stake in Apple, as have hedge funds.

Meanwhile, fewer than two-thirds of analysts tracked by Bloomberg recommend buying the stock, making it significantly less popular than other megacaps. And while only three of 60 analysts recommend selling, the average price target of $243.25 suggests that Wall Street doesn’t see the stock, which was trading modestly higher at $247 on Tuesday, going anywhere over the next 12 months.