How the coronavirus has affected Apple stock predictions
Apple stock predictions have been gone out of the window since the coronavirus crisis began. Here’s the latest.
has long been a darling of Wall Street. Despite being priced at the higher end, demand for iPhones and Macbooks has been healthy. The tech giant’s innovative streak has delivered everything from iPads to smartwatches. Unfortunately though, there are some things even the sharpest Apple stock predictions can never predict.
Just look at the coronavirus. In the space of just a few short weeks, the outbreak has caused global uncertainty, panicked the public and spooked investors. Although it may be fashionable to think that airline stocks would be hardest hit by the crisis – given how widespread travel restrictions are now in place – the disease is adversely affecting companies across a plethora of sectors. And yes, one of them is Apple.
Apple share price outlook
Despite being an American company, stock predictions have been muddied somewhat by the coronavirus – or, to give it its official name, COVID-19. It makes sense: the vast majority of Apple’s iPhones are manufactured in the Chinese city of Shenzhen, and key components such as batteries are made elsewhere in the nation.
Shenzhen is more than 1,100km from Wuhan, the Chinese city at the centre of the coronavirus outbreak. At the time of writing, Shenzhen had just 417 confirmed cases of COVID-19 – barely 0.5 per cent of the total in mainland China. Just three deaths have been reported there compared with the 2,563 in Hubei, the province where Wuhan is based.
This brings us back to why the stock predictions for tomorrow may not be as upbeat as they were a couple of months ago. One driving factor in how Shenzhen has managed to keep the number of COVID-19 cases so low are the lockdowns that have been in force. The movement of about 13m people has been restricted, and strict quarantines have been in place for anyone who may have come into contact with a coronavirus patient. People hoping to come to Shenzhen have had to register their car’s licence plate in advance.
And that’s all before we’ve talked about the impact to manufacturing in this economic powerhouse – the self-same impact that’s made Apple stock predictions so gloomy. Foxconn, a major supplier to Apple which is responsible for assembling iPhones, had little choice but to slam the brakes on production when the scale of the coronavirus became clear. We’re not talking about a little inconvenience – its Shenzhen factory has more than 200,000 workers.
Production had already dwindled because of the Lunar New Year celebrations, but now, workers returning from outside Shenzhen have been told to quarantine for up to two weeks before they go back to the plant. Eight staff normally share a dorm room when they are working for Foxconn – but now, seven of the bunk beds lie empty as only one person is allowed to stay in each room during the quarantine period. Apple has also heavily relied on a “just in time” supply chain where raw materials are only delivered shortly before they are needed in the manufacturing process. Nationwide shipping complications have disrupted these deliveries immeasurably.
Many an share price forecast was rewritten when the company admitted that revenues in the current financial quarter would take a hit because of this disruption. The company sent shockwaves through Wall Street by saying there was “a slower return to normal conditions than we had anticipated” – constraining the supply of iPhones worldwide. Tough questions are being asked about Apple’s processes too, with one source telling the Financial Times that the problems caught the company “completely off guard” because its supply chain is “completely fragile”. Following its candid announcement, more than $45bn was wiped from Apple’s market cap. Ouch.
This isn’t the only coronavirus-related problem weighing heavily on Apple stock predictions. Although iPhone supplies may have taken a slump, there’s also been a dip in demand across China – one of the tech giant’s largest markets. At the start of February, Apple closed all 42 of its retail stores in the country, not to mention all of its corporate offices. Although some outlets in Beijing have started to reopen, their operating hours are now a lot shorter – and not many people are paying a visit.
Reverberations from this disruption could be felt for months to come, too. It’s already being reported that China-based staff who are overseeing the rollout of the next iPhone, which is tipped for release in the autumn, are two weeks behind schedule. Given how the latest range of its smartphones is almost unveiled in the second week of September, this year’s iPhone launch may very well be later than it normally is.
Apple stock predictions 2020
So… what is the latest stock price prediction given the coronavirus turmoil? Will AAPL stock go up in the not-too-distant future? That depends on who you ask – and how long they believe the disruption is set to last.
Some estimate that about one month of production time will have been lost as a result of this outbreak but are optimistic that lost ground will be regained through overtime when things begin to settle down. This school of thought indicates that there won’t be lost revenue as such – instead, earnings will be deferred to future quarters.
If the coronavirus outbreak rumbles on with no end in sight – and given how countries around the world are still beginning to diagnose cases for the very first time – Apple’s reliance on Chinese manufacturing could result in lasting damage, not to mention sweeping (and potentially expensive) changes to its just-in-time supply chain.
Many major financial institutions continue to believe that, for those who invest in shares indefinitely, there is little to worry about at present. JPMorgan analysts say their long-term attitude to the company hasn’t changed, adding: “We expect most long-term investors in Apple shares to look past these temporary headwinds, with both products and services continuing to demonstrate strong underlying consumer demand.”
Others say Apple’s determined attempts to diversify its revenue away from iPhones – through thing such as wearable devices and its new streaming service – will help protect the company’s share price against a precipitous drop. It’s also worth bearing in mind that Apple’s financial reserves are extraordinary. Back in July 2019, the company had a cash pile of $210bn, substantially more than the US government.
Right now, it’s very easy to find an Apple stock price prediction that fits your opinion: one that says the coronavirus will be a disaster for the company’s valuation, and another that says the danger is being overblown. We don’t know who will end up being right – and as the true extent of the outbreak is yet to become clear, with the number of cases continuing to rise, it may pay to be weary.
FURTHER READING: Chinese manufacturing expands despite coronavirus