How we are treating the latest Apple news ahead of next week's earnings

Published Mon, Oct 23 20235:43 PM EDT

Jim Cramer has some simple advice for investors trying to make sense of the latest Apple (AAPL) news going into next week's earnings: Don't panic. State media Global Times reported on Sunday that Chinese authorities are investigating key Apple supplier Foxconn. It's just the latest in a string of negative headlines for the tech giant in China, its third-biggest market. Meanwhile, Bloomberg reported that Apple is busy playing catch-up with its mega-cap peers on artificial intelligence. Surprisingly, these two new headwinds didn't seem to rattle investors. Apple shares actually broke a six-session losing streak Monday, closing up 12 cents at $173 apiece. While we are closely monitoring these latest developments, we have no plans to change our approach to Apple — at least until the company's post-earnings conference call with investors. This is when management can explain how the past three months went and what they see coming up for the holiday quarter — and also answer questions from analysts. The company reports its final quarter of fiscal 2023 on Nov. 2 after the bell. "Why not wait [and] see what they have to say?" Jeff Marks, the Club's director of portfolio analysis, said Monday. "This is a give-them-the-benefit-of-the-doubt situation through all these headlines." Challenges in China Foxconn, one of Apple's largest suppliers, said it will cooperate with Chinese authorities following a state media report that government officials are conducting tax audit inspections and land use inquiries . It's the latest report of increased scrutiny by the Chinese government of foreign companies doing business there. The timing of the Foxconn probe raises questions since it only came to light after the company's founder, Terry Gou, announced his candidacy in Taiwan's 2024 presidential election. Beijing contends that self-governed Taiwan is part of its own territory. China's stance on Taiwan is one of the risks that Wall Street and Washington are watching closely. AAPL YTD mountain Apple (AAPL) year-to-date performance While the news could have big implications for a key iPhone manufacturer, the full impact on Apple remains unclear. Foxconn is the company's main supplier in China — its third-largest market after the Americas and Europe. China makes up roughly 19% of Apple's revenues, according to the company's August earnings release , with more than 43% coming from the Americas. On Monday, Jim Cramer told investors not to panic — and to instead, monitor the headlines out of China and wait until they hear from management after the market closes on Nov. 2. That's because the Foxconn situation isn't the first time that Apple has heard concerning developments out of China this year. Indeed, Apple's standing as a "hold it, don't trade it" stock in our portfolio isn't diminished, Jim said during the Club's Morning Meeting. Shares of Apple took a roughly $200 billion market cap hit over two days last month on a Wall Street Journal report that Chinese authorities prohibited iPhones and other foreign-branded devices for its staffers in the office. The Chinese government later denied the report. However, Apple stock was still nearly 9% below its Sept. 5 close, the day before the Journal report. Apple has remained a premium brand in China because of its quality products and powerful ecosystem. But, the stock has struggled since Jefferies put out a note estimating last week that Apple has lost its smartphone crown in China to homegrown rival Huawei, which put a high-end device to rival the iPhone. Facing challenges in China's tepid economic recovery post-Covid and souring relations with the U.S. and the West, Apple management is making strides to curb risk. The company is expanding into emerging economies like India in order to diversify its supply chain and grab smartphone market share in the world's most populous country. Generative AI push Bloomberg over the weekend reported that the company is working to catch up on generative AI plans, adding that execs were "caught off guard" by the industry's adoption of the nascent tech. In fact, Apple is poised to spend $1 billion per year on developing generative AI and integrating it into its products, according to Bloomberg. Generative AI can create human-like responses and visual content based on user prompts. Apple already uses AI to improve photos and autocorrect text but has not put out something like Microsoft -backed OpenAI's ChatGPT or Bard from Alphabet -owned Google. Instead of trading on speculation, however, we will listen to what management says about Apple's AI efforts during next week's earnings call. While the Club thinks AI can be a major catalyst and growth prospect for mega caps, Apple still has solid business fundamentals and diverse revenue channels that leave us bullish long-term. (Jim Cramer's Charitable Trust is long AAPL, MSFT, GOOGL. 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.

A person poses holding the original iPhone and the new iPhone 15 outside the Fifth Avenue Apple Store in New York City ahead of the launch of Apple’s new iPhone 15, Sept. 22, 2023.

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