Apple’s market value drops $180 billion in less a week. Here's why Wall Street is overreacting

Published Wed, Aug 9 20231:24 PM EDT

Around $180 billion of Apple's (AAPL) market value has been incinerated since the tech giant reported quarterly results last week — a reaction we consider overblown for this own-it, don't-trade-it stock. Apple's staggering market cap loss reflects the stock's 6% decline from its closing price of $191.17 per share on Aug. 3 — the day before the company's after-the-bell earnings release — through Tuesday's close. Apple's market cap is now under $3 trillion after a string of losses before and after last week's earnings. The stock closed at an all-time high of $196.45 on July 31. Already on a three-session losing streak, investors were spooked after the world's most tech-valuable company released mixed results, driving down the stock 4.8% last Friday and another 1.7% on Monday. Tuesday's trading brought a modest respite from the selling, which resumed the following day. AAPL YTD mountain Apple's YTD performance Late last Thursday , Apple posted strong Services sales, but missed on Products. Overall revenue for the company's fiscal third quarter of $81.8 billion fell 1% year-over-year but beat out expectations of $81.69 billion. Still, this was Apple's third straight quarterly decline. Earnings per share of $1.26 rose 5% compared to the year before, topping the Refinitiv consensus estimate of $1.19. We were more encouraged by the story of high-margin Services than by weakness in Products. Looking ahead to the back half of 2023, featuring the annual fall new iPhone announcement, we raised our price target to $205 per share from $185 that evening. It reflects a stock valuation of about 31 times Apple's fiscal 2024 earnings estimates. Apple shares received a rare downgrade from Wall Street following the earnings numbers. Rosenblatt Securities analyst Barton Crockett cut Apple's rating to neutral from buy, arguing the Big Tech name is stuck in a "slowdown phase" and continues to show no top-line growth. Crockett held the firm's $198-per-share price target steady. "Apple makes the most important device of the modern economy — the iPhone — has executed an impressive upgrade to Macs with the pivot to Apple Silicon, and is reaccelerating services," Crockett wrote in a note last week. "But a slowdown in the U.S. seems likely to last until a material new product category takes hold. And that is uncertain both in timing and success, leaving little reason to favor shares now trading near peak absolute and relative multiples." Could that "material new product category" be Apple's recently announced Vision Pro? Jim Cramer got a demo and was blown away and thinks the mixed-reality headset could accelerate a new era of computing. Big names on the Street also remain optimistic about the Cupertino, California-based company's long-term prospects despite recent headwinds. In a note ahead of the quarter, JPMorgan analysts argued that Apple's "inherent diversification" makes it an "earnings compounder" with recurring revenues. The analysts raised their price target into the print to $235 from $190 and kept their overweight buy-equivalent rating. JPMorgan also mentioned at the time that "upside in several aspects of the business, as well as financial, remain underappreciated by investors, namely the transformation of the company to services, growth in the installed base, technology leadership and optionality around capital deployment." Those comments around growth in Services and Apple's installed device base were rather prescient as strength in both were things to like about the quarter. Bottom line While the multibillion-dollar selloff has been astonishing, we maintain our own-it, don't-trade-it stance on Apple. Shares are still up over 35% year-to-date, joining others in Big Tech weathering economic uncertainty since the start of 2023. If history proves itself, Apple would likely rally ahead of its September product launch as well. Apple's quarterly results were wrongly dismissed. Bears argue the company remains overly reliant on shrinking iPhone sales amidst difficult macro conditions. This three-month sales performance is offset, however, by strong quarterly services revenue and installed device base numbers. "The earnings call with investors, however, was spent mostly on so-called faltering hardware and shrinking iPhone sales, which tells me that Apple is going to be in one of its traditional purgatory funks that can last until people forget why they sold shares in the first place," Jim Cramer said. "I came up with 'own it, don't trade it' for Apple because there have been so many quarters like this one. Those who beg to differ, beg somewhere else," Jim said. "This is how Apple trades and it is why so few investors are actually around for the big wins." We also see immense growth opportunities in Apple's expansion into emerging markets such as India. The region has become one of the top-five iPhone markets over the past quarter, per Counterpoint Research data. In June, CEO Tim Cook even told CNBC that India represents a "huge opportunity" for Apple. Morgan Stanley analysts predict that India could make up 15% of the company's revenue growth over the next five years as well. (Jim Cramer's Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

IPhone 14 Pro models are promoted outside Apple Inc.'s flagship store in Shanghai, Oct. 13, 2022.

CFOTO | Future Publishing | Getty Images