Apple (AAPL) has experienced setbacks in the past. Its stock fell over 30% in less than 2 months in 2018, eliminating billions in market capitalization and negating substantial gains during a single market correction. If past occurrences are indicative, AAPL stock is not safeguarded from unforeseen, rapid drops. Conversely, see Why Microsoft Stock Is Bracing For A Bull Run.
NEW YORK, NEW YORK – MAY 21: Recently released iPad Pros are seen at the 5th Avenue Apple store on May 21, 2021 in New York City. Apple recently launched new consumer products. (Photo by Michael M. Santiago/Getty Images)
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Specifically, for Apple, we identify the following risks:
Risk 1: Regulatory Control on App Store
- Details: Mandated reduction of the App Store commission by 30%, Devaluation due to hindered Services growth
- Segment Affected: Services
- Potential Timeline: Immediate to Q1 2026
- Evidence: U.S. antitrust class action trial scheduled for February 2026, India imposing potential fines up to $38 billion based on global revenue, EU has already enforced a 500M fine for anti-competitive App Store practices
Risk 2: iPhone Profit Margin Pressure from Chinese Rivals
- Details: Loss in iPhone market share in Greater China, Compression of gross margins due to pricing pressure
- Segment Affected: iPhone (Greater China)
- Potential Timeline: Q1-Q2 2026
- Evidence: Weakening demand for iPhones in China because of rising competition from domestic brands like Huawei, Elevated stock valuations vulnerable to indications of slowing growth in primary markets, Samsung indicating increasing cost pressures across the smartphone sector in 2026.
What Is The Worst That Could Happen?
Examining Apple’s vulnerabilities during significant market downturns reveals a critical narrative. It dropped 80% during the Dot-Com crash, 61% amidst the Financial Crisis, and nearly 31% during the most recent inflation pressure. Even minor sell-offs, such as in 2018 and during the Covid downturn, saw declines near 30%.
However, stocks can decline even amidst favorable market conditions – consider occurrences such as earnings announcements, business updates, and forecasts. Read AAPL Dip Buyer Analyses to learn how the stock has rebounded from sharp declines previously.
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Is Risk Showing Up In Financials Yet?
- Revenue Growth: 10.1% LTM and 4.1% last 3-year average.
- Cash Generation: Nearly 28.3% free cash flow margin and 32.4% operating margin LTM.
- Valuation: Apple shares trade at a P/E ratio of 32.8
For more information, read Buy or Sell AAPL Stock.
Summary
Trefis
*LTM: Last Twelve Months
For more information, read Buy or Sell AAPL Stock.
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