How Apple Stock Recovers To $250

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Apple Stock experienced significant volatility over the past five trading sessions, dropping 23% following President Donald Trump’s announcement of broad tariffs affecting over 100 countries. However, shares jumped 15% on Thursday after the tariffs were temporarily suspended for 90 days. Despite the rebound, Apple stock is still trading about 20% below the peak of approximately $250 reached earlier this year.

We estimate that Apple’s earnings could decline by 30% in a worst-case scenario. Nonetheless, Apple has consistently demonstrated agility in pricing, effective supply chain management, and strong partnerships, which could soften the blow from tariffs and help push its stock back to the $250 levels seen earlier this year.

Mitigating Tariff Impact

While the tariffs could significantly impact Apple, we believe there are several strategies to reduce their effect.

• Apple has not raised the base price of its flagship iPhones in over seven years, while the U.S. consumer price index has increased about 29% during the same period. This leaves Apple room to increase prices by $100 to $200 for its next-generation iPhone launching this fall, without major pushback from consumers.
• U.S. wireless carriers have been heavily subsidizing iPhones to attract and retain customers in an increasingly saturated market. Given this dynamic, Apple could share some of the tariff costs with carriers, who may absorb part of the increase to stay competitive.
• Currently, most iPhones sold in the U.S. are produced in China, where cumulative tariffs exceed 100%. Since the current pause doesn’t apply to China, Apple may relocate production to countries like India, where tariffs are considerably lower—26%, or potentially 10% after the pause. This move is feasible given CEO Tim Cook’s strong reputation in supply chain optimization.
• Apple’s services division—which boasts the highest margins—is also its fastest-growing segment. Services revenue grew 14% during the holiday quarter, while hardware only grew 1.5%. Service margins stood at 75% in Q1 FY’25, compared to 39% for hardware. As services expand, they could help cushion the impact of hardware-related tariff pressures.

Even with these mitigation strategies, Apple’s U.S. margins might shrink by around 10% in the short term. However, the stock may still prove resilient. The U.S. makes up about 25%-30% of Apple’s total revenue and has been one of its slower-growing regions. Continued growth in emerging markets such as India and Southeast Asia could provide some assurance to investors.

Additionally, Apple is widely seen as a defensive stock, often outperforming during market downturns. For example, during the 2022 inflation shock, AAPL shares dropped 31.3% compared to a 25.4% fall for the S&P 500. In the early stages of the Covid-19 crisis, AAPL fell 31.4%, versus a 33.9% decline for the S&P 500. However, the current drop is about twice as steep as the S&P’s, suggesting potential for a rebound as conditions stabilize and Apple fine-tunes its operations.

Navigating Market Irrationality

Apple has overcome major challenges before and emerged stronger. Though the near-term outlook remains tough, the company’s robust product ecosystem and sound financials provide a firm base for recovery.

Markets can remain irrational for extended periods, especially in times of heightened fear. For patient, long-term investors, the recent pullback in AAPL stock could be an opportunity. Those who are less comfortable with volatility may benefit from a hedged strategy or broader diversification, such as the Trefis Reinforced Value Portfolio, which has outperformed its all-cap benchmark (a mix of the S&P 500, S&P mid-cap, and Russell 2000 indices). Consulting a seasoned financial advisor can also be beneficial during market downturns. Staying calm and strategic during volatile times is often key to building long-term wealth.

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