The Plunge in Apple’s Market Cap: Unveiling the $200 Billion Downturn

**Apple’s Post-Earnings Plunge and Market Cap Decline**

Shares of Apple continued to decline after its recent earnings report, losing over $200 billion in market cap in less than a week. This represents Apple’s worst five-day session since November 2022. While Apple’s size makes any decline in its share price appear significant, the recent drop has been historically large.

**Falling Revenues: The Impact of iPhone Sales**

Apple’s turbulence began when it reported that its iPhone sales fell short of Wall Street’s estimates for the June quarter, causing the company’s overall revenues to drop 1% year-over-year. Despite growth in its services segment revenues, iPhone sales still account for about 50% of Apple’s total revenue. This reliance led to a wave of analyst downgrades for Apple’s stock.

Rosenblatt analysts downgraded Apple’s shares to “neutral” from “buy,” citing the company’s “slowdown phase.” Additionally, Loop Capital analyst Ananda Baruah lowered his rating to “hold” from “buy,” expressing concerns about Apple’s revenue guidance if iPhone sales do not rise throughout the year. Apple experienced declines in iPhone, Mac, and iPad revenues for the quarter.

**Weak Guidance and Disappointing Outlook**

Apple’s weaker-than-expected guidance from management contributed to the recent sell-off in its stock. The company projected gross profit margins of 44% to 45% for the September quarter, with flat to slightly slower year-over-year revenue growth. Apple’s CFO, Luca Maestri, also anticipated continued revenue declines for the Mac and iPad throughout the year.

Wall Street analysts, including Wedbush tech analyst Dan Ives and Bank of America analysts, acknowledged that Apple’s guidance was weaker than expected, with Ives characterizing it as “a tad light of the Street.” They pointed to a weak U.S. smartphone market as a significant backdrop for Apple’s outlook.

**The Impact of a Lofty Valuation**

Apple’s rich valuation is another factor putting pressure on the stock. Despite three consecutive quarters of falling revenue, Apple’s shares were up 51% year-to-date at their peak. The stock traded as high as 33 times earnings, and even after the recent drop, it still trades at around 30 times earnings. In comparison, the S&P 500 trades at roughly 20 times earnings.

Some analysts argue that Apple’s cost-cutting measures and growing high-margin services revenue warrant paying a premium for the stock. They note that overall net income rose 2.3% to $19.9 billion in the June quarter, with services revenue reaching a record high of $21.2 billion. However, others worry that Apple remains overly reliant on declining iPhone sales in a challenging macroeconomic environment.

**Long-term Outlook and Split Reactions**

While Apple’s latest quarter raised concerns among investors, Wall Street analysts had split reactions. Some analysts remained optimistic about the tech giant’s long-term prospects despite the recent headwinds. They highlighted that on a constant currency basis, revenues for the iPhone segment actually rose 1.4% year-over-year last quarter. They also emphasized strength in key overseas markets such as China and India for future growth.

Wedbush tech analyst Dan Ives expects the release of the iPhone 15 in September to create a “mini super cycle” of demand, while Apple continues to increase its services segment revenues. Bank of America analyst Wamsi Mohan believes that Apple’s services business revenue can continue to grow due to improving trends in advertising, mobile gaming, and App store sales. However, some analysts are concerned about Apple’s lofty valuation and falling revenues in the near term.

UBS analyst David Vogt expressed worry about Apple’s premium valuation compared to the S&P 500 and the potential for growth in the services segment to offset declining hardware sales. He noted that a challenging smartphone market, especially in developed regions, could continue to be a headwind for the stock.

In conclusion, Apple’s post-earnings plunge and market cap decline have been driven by falling revenues, weaker guidance, and a lofty valuation. While long-term prospects remain optimistic for some analysts, concerns linger regarding the company’s reliance on iPhone sales and its premium valuation.

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