Apple’s Stock-Market Performance Is Increasingly Made In China

Investors in America's biggest company are increasingly focused on China, where Apple Inc. is striving to win over a crucial customer base while also facing tariff-related risks.

The iPhone maker counts China as a significant market and a major manufacturing hub. If it improves its flagging sales in the country with artificial intelligence features in its devices, that could be a key catalyst to revive the investment case. On the other hand, tariffs and the prospect of an escalating trade war represent risks of unknown magnitude.

“Apple's level of exposure to China is a risk relative to much of the rest of the market,” said Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management. The prospect of Apple being in the crosshairs of tariffs or investigations should be on investors' radars, he said.

“However, if AI iPhones are a success, that could mean steady growth over the next several years,” he added.

The shares are down 5% in 2025, making Apple the worst performer among the Magnificent 7 except for Tesla Inc. Sentiment has soured in recent months, with tepid demand for the iPhone 16 — the first to incorporate AI features — and tariff risks weighing. The company's recent results were mixed, featuring disappointing China and iPhone sales, though the forecast was seen as encouraging.

The stock dipped 0.1% on Thursday.

Improving China sales would be significant. Apple got about 17% of its fiscal 2024 revenue from the greater China region, according to data compiled by Bloomberg, compared with about 26% for Europe and more than 40% for the Americas.

The potential for improved trends in China was demonstrated this week, when Apple jumped on a broadly negative day for markets following a report that it has started working with Alibaba Group Holding Ltd. to bring AI features to Apple products in China. The Chinese firm's chairman confirmed the partnership on Thursday.

“We would view this as a critical catalyst for Apple's competitive standing in China,” Morgan Stanley analyst Erik Woodring wrote earlier this week. Citing a survey the firm conducted, he added that Chinese iPhone users are more interested in AI than US or European peers, and that more than 50% said the staggered roll out of Apple Intelligence had “a moderate to significant impact on their decision not to upgrade to a new iPhone this cycle.”

Any improvement would also come after a period of muted growth compared with Big Tech peers. Apple's revenue has fallen in five of the past nine quarters, and while analysts expect 4.9% growth in fiscal 2025, this is less than half the 11.6% pace expected for the overall tech sector, according to Bloomberg Intelligence.

Within this context, geopolitical tensions loom large. The Trump administration imposed 10% tariffs against China, and the country retaliated with tariffs of its own. China is also weighing a potential probe into Apple's policies and App Store fees.

Analysts are so far downplaying the risk of tariffs, though they note uncertainties like how long they might be in place and whether Apple will get an exemption. Evercore ISI sees an impact “in the range of 3-4% of EPS,” which it described as “relatively minimal.” Bank of America said the impact on earnings should be “limited” and “manageable.”

Still, Apple's valuation suggests limited room for error. Shares trade at 31 times estimated earnings, roughly 50% above their average over the past decade. The stock also trades at a premium to the broader market and the overall tech sector.

Following multiple downgrades this year, just over 60% of analysts recommend buying the stock, a rate well below megacaps like Microsoft Corp., Nvidia Corp., Amazon.com Inc., Alphabet Inc., or Meta Platforms Inc.

Still, investors continue to view Apple as a relatively defensive stock given its strong cash flow, massive buyback program, high-margin services business, and a lack of heavy spending on AI.

“Apple looks a little problematic in the short term given the valuation and the lack of growth, but you're not going to find a more impressive cash-cow of a company,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services. “There's a reason it remains an institutional and retail favorite.”

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