In 2023, Apple (NASDAQ:AAPL) stock outperformed the Nasdaq Composite but emerged as the worst-performing FAANG member. Despite a robust 49% gain, the iPhone maker faced a rare setback, and the trend seems to continue in 2024 with three brokerages downgrading the stock within the initial two weeks of the year.

Analysts typically hesitate to downgrade Apple, known for its resilience among tech companies. This article delves into the 2024 predictions for Apple stock and explores the reasons behind the recent bearish sentiment among analysts.

Factors Contributing to Apple’s Underperformance in 2023

In fiscal year 2023, Apple reported negative revenue growth for four consecutive quarters, a first since 2001. The company’s outlook for the December quarter failed to inspire confidence, projecting revenues “similar” to the previous year. This contrasted with the favorable results from its FAANG peers, who rebounded impressively after the 2022 crash.

Apple Stock 2024 Predictions and Analyst Sentiment

Among the 28 analysts covering Apple stock, 15 rate it as a “Strong Buy,” while 3 label it a “Moderate Buy.” However, nine analysts suggest a “Hold,” and one deems it a “Strong Sell.” Despite being the second lowest-rated FAANG stock, Apple’s mean target price of $205.15 indicates a premium of over 10% compared to its current stock price.

Nevertheless, recent weeks have witnessed increased bearish sentiment. Redburn, Piper Sandler, and Barclays all downgraded the stock. While Redburn and Piper Sandler now rate it as a “Hold,” Barclays lowered its rating to a “Sell” equivalent with a Street-low target price of $160.

Analyzing the Bearish Turn on AAPL

Analysts express concerns about a potential prolonged slowdown in iPhone sales, particularly in China, Apple’s third-largest market. Domestic Chinese competitors like Huawei and Xiaomi pose strong challenges, with Huawei rebounding after U.S. restrictions to capture market share. To counter soft demand, Apple is offering limited-time discounts on its latest iPhone models in China.

In contrast, Apple’s FAANG counterparts navigated challenges successfully in 2023. Netflix addressed growth concerns with an ad-supported tier and cracked down on password sharing, resulting in a substantial increase in subscribers. Similarly, Meta Platforms and Amazon impressed the market with aggressive cost-cutting measures, leading to significant gains in earnings and operating margins.

Evaluating Apple’s Position and Risks

Despite Apple’s initiatives in the Indian market and upcoming augmented reality headsets, these may not compensate for the slowing sales in China. Regulatory challenges, including a U.S. ban on some Apple Watches, add to the uncertainties. Elevated valuations, with a trading multiple of over 28x next 12 months’ earnings, raise concerns, surpassing pre-COVID-19 pandemic levels.

While Apple remains a stalwart “hold for life” company, caution is advised at current price levels due to unfavorable short-term risk-reward dynamics.

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