To The Moon

🌟🌟🌟Apple$Apple(AAPL)$  is the worst performing Magnificent 7 mega stock currently following the release of its 2nd Fiscal Quarter Results on Thursday.  Its share price fell 3.7% post earnings.

Is Apple a Falling Knife or a Buy?

To order to  determine this, let's check out Apple's Fiscal 2025 2nd quarter results.  The company posted quarterly revenue of USD 95.4 billion, up 5% year over year, and quarterly diluted Earnings Per Share of USD 1.65, up 8% year over year.  Apple also reported USD 24 billion in operating cash flow, allowing it to return USD 29 billion to shareholders. 

Apple's Board of Directors has declared  a cash dividend of USD 0.26 per share, an increase of 4%.  The dividend is payable on May 15 2025 with an ex dividend date of May 12 2025.  The current dividend yield is 0.49%.  Apple has also authorised an additional program to repurchase up to USD 100 billion of its shares. 

Tim Cook, CEO of Apple said that Apple has  reported strong quarterly results, including double digit growth in Services.  During the quarter Apple has launched iPhone 16e to its lineup and introduced powerful new Macs and iPads that take advantage of the extraordinary capabilities of Apple silicon. 

Apple silicon refers to a family of custom designed chips  developed by Apple.  These chips integrate multiple components such as Central Processing Unit, Graphics, neural engines and other controllers into a single chip or within a system in a package.  

Originally Apple silicon debuted in its mobile devices within the A series used in iPhones and iPads.  Since then it has expanded to power the entire range of Apple products including Macs, Apple TV, Apple Watch, AirPods and even Apple Vision Pro. 

Despite the excellent results, Apple's shares fell when Tim Cook said that the impact caused by the tariffs would add USD 900 million to its costs.  Another drawback was that Tim Cook was unable to give any insights into the effect of the tariffs after the current quarter ending in June. 

Apple's consensus beat was narrow.  Its GAAP earnings per share of USD 1.65 was just 3 cents ahead of the forecast.  However  revenue of USD 95.4 million was USD 840 million ahead of consensus. 

The star performer was Services as its revenue in this segment climbed 12% year over year, double the overall level. While wearables, home and accessories revenue fell 5%, iPad revenue also climbed 15% year over year. 

The strength of Apple's Fundamentals

Apple's fundamentals remain compelling. 

The company's recent fiscal 2nd quarter earnings showcased revenue and earnings growth.  This was driven by its flagship iPhone, expanding services segment and a diverse array of other products.  An expanded ecosystem has not only bolstered revenues but also cemented customer loyalty. 

Moreover, with a robust balance sheet and a proven track record of innovation, Apple continues to demonstrate resilience even in the face of headwinds like trade tensions and tariff related cost pressures.   For investors who look to long term value, these factors present a powerful argument to remain invested despite short term fluctuations. 

Evaluating Market Volatility and Short Term Risks 

Even a fundamentally strong company like Apple is not immune to external pressures.  Tariff concerns, supply chain disruptions and broader macroeconomic uncertainties have the potential to exert temporary downward pressure on Apple's share price. 

The term "falling knife" refers to the danger of buying into a stock in the midst of a rapid decline, only to see further drops. 

While Apple is currently experiencing sell offs linked to such headwinds, it is important to note that these moves are often reactions to short term market sentiments, rather than indications of deteriorating business fundamentals. 

Is Apple Trading At A Discount Because of Overreactions? 

Investors wary of near term hurdles such as a reported potential cost impact from tariffs may sell in panic.  However for those with a long term horizon, such price sell offs, can be interpreted as an opportunity to buy into a stock with proven resilience and  a track record of overcoming temporary setbacks. 

The strength of Apple's diversified revenue streams, including its growing services and wearable businesses, suggest that the underlying business remains robust even when short term factors weigh on sentiment. 

What action is Apple taking to overcome this hurdle? 

Supply Chain Diversification 

Historically much of Apple's manufacturing has been centralised in China.  However Apple's move to boost production in India is a proactive measure to mitigate global supply chain risks. 

By diversifying its manufacturing base, Apple not only reduces the impact of geopolitical tensions and tariff exposure, but also creates operational flexibility and cost efficiencies.  This realignment towards a more distributed supply chain structure is intended to support sustainable growth, allowing Apple to remain agile in the face of evolving global challenges. 

Apple's Plan to Bolster Its US Manufacturing Capacity 

At the heart of this strategy is an unprecedented pledge to invest more than USD 500 billion in the US over the next 4 years.  This signals Apple's long term confidence in American innovation and advanced manufacturing capabilities. 

It is important to note that while Apple is expanding its US manufacturing footprint, this move is largely focused on components and supporting systems rather than full scale assembly of consumer devices like iPhones. 

Apple plans to manufacture a significant portion of its US bound iPhones through expanded production in India and other regions, largely as a counter measure to tariffs and other international trade risks. 

In contrast the US investments target areas where high automation and advanced production techniques can deliver greater efficiency and quality control, such as server production and Semiconductor components.

Is Apple  Buy, Sell or Hold according to Analysts?

According to Tipranks, Apple has a consensus rating of Moderate Buy which is based on 18 buy ratings, 7 hold ratings and 3 sell ratings.  The average Target price of Apple is USD 234.13, an upside potential of 14%.

The Buy Argument: Why Long Term Investors Should Consider Apple

For long term investors, the fleeting nature of macroeconomic headwinds should be measured against Apple's enduring competitive advantages.  Innovations in technology, a continued commitment to expanding its ecosystem and strategic rebalancing of its supply chain such as increased production outside China, provide a buffer against tariff induced pressures. 

When viewed through the lens of multi year growth, the temporary dip driven by external events may represent a tactical buying opportunity rather than a harbinger of a permanent decline. 

As Warren Buffett likes to say When there is Fear in the markets it is time to be greedy. 

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