AAPL

Shares of the iPhone maker were down as much as 7% in the next three trading days after May 1 when the company released its quarterly earnings, despite beating consensus estimates in both profit and revenue lines. The giant company published its Q1 sales at $95.36 billion to bring $1.65 of adjusted equity per share vs analyst pool projections which pointed at $94.68 billion and $1.63 per share, respectively, with particular sales of iPhones at $46.84 billion vs Wall Street's average estimates of $46.17 billion. In fact, that's almost 8% better in profit and 5% higher in revenue on an annual basis. It would seem, live and rejoice, but at least three things prevent this kind of very nice attitude.

The first, but perhaps the smallest problem, of the latest Apple's report is that such a bar for earnings had been already achieved in Q3 2024. Since then, only outstanding results from October to December, as it usually happens in the pre-Christmas periods, gave a bright spike to $2.4 of equity per share on $124.3 billion of sales, but no other positive changes are seen right at the moment. The crowd might have felt as if the last six months were merely a waste of time. The surge in Apple quotes to $260 before the end of 2024 has already priced that spike in, but the following corrective move well below $200 looks logically justified, since everything has returned to new normal levels.

And here is actually the second, and most crucial, reason why markets remained immune to the idea of purchasing Apple stock this time. Apparently, Apple has not yet fully decided how to overcome Trump's tariff barriers, given that the bulk of its products are still assembled in China. The life of the party, Tim Cook, showed a little depressing prospect. "Assuming that the current global tariff rates, policies and applications do not change for the balance of the quarter and no new tariffs are added", he estimated the negative impact to add $900 million to quarterly costs. Tim Cook's version was that the majority of iPhones to be sold in the United States in the current quarter will somehow come from India, while most iPads, Macs and Apple Watches will come from Vietnam, but "the vast majority of Apple products for markets outside the U.S. will continue to come from China". At the same time, he argued Apple has "a complex supply chain", so that "there’s always risk in the supply chain", and "what we learned some time ago was that having everything in one location had too much risk with it". He also signalled that Apple’s efforts to spend more in the US may bring real costs to Apple’s balance sheet even higher, as the company will buy 19 billion chips from a dozen US states for this purpose. This may require extra costs, and it is clear that production in the US cannot be as cheap as in China or India.

Apple’s accessories and wearables segment, with products like AirPods, gave $7.52 billion, compared with estimates of $7.85 billion. But that would be half bad. Another half was that Apple’s services business, which is usually very strong, so that nobody seriously expected to see a weak point here, gave $26.65 billion in the recent quarter, compared with average analyst estimates of $26.69 billion. This segment didn't show any superiority at the proper moment. Meanwhile, in a nasty wake-up call, Epic Games developer of the Fortnite game, who has been in court with Apple for several years, finally won the case last week. Apple risks losing billions of dollars in profits, since other app developers, following Fortnite example, will be able to receive direct payments in the App Store, without sharing up to 30% of the proceeds as Apple demanded before. Apple made extremely difficult for app developers to pay directly, so that payers went through a series of screens, including one with a warning that Apple did not guarantee the security of the payment. Many people at this stage began to doubt and paid the old–fashioned way - through the App Store. Again, if the payment didn't go through the App Store, Apple still required a 27% commission if the third-party app was downloaded from the App Store, while the app creators were supposed to report on transactions and deduct a share to Apple, which is now seems to be unable to charge a commission on purchases outside the App Store.

All in all, Apple CEOs concluded the company could get a "low-to-mid single-digit" revenue growth, but at the same time projected some "hit to gross margins". They said it will be 45.5% to 46.5% in the current quarter, which is marginally below analyst pool's estimates of 46.58%, according to LSEG data. Such expectations already meant a potential damage to profit levels even in case of increasing sales.

As you can see, there are several reasons to think more about possible stagnation in Apple's earnings, which makes me agree with the majority of the market and refrain from fresh purchases of Apple shares so far. Many other tech names like Microsoft, Google, Meta or Amazon do not have such bare weak spots and are quickly recovering. Less connection to the physical supply of products, as well as offering cloud storage services for big data and artificial intelligence features can attract more money, at least at this stage of the market's sentiment. Until Apple shares learn to pass through the area of technical resistance near $215 (marked in orange on chart below), plus are within the boundaries of the descending channel (I marked in blue on the same chart), for me this is an indication that it's too early to talk about buying Apple.