Investors have turned their backs on tech stocks in 2022 as increasing inflation has led to a decline in consumer spending. This has planted doubt for the financial futures of some of the world's most valuable companies.
Apple's (AAPL +1.39%) share price has fallen almost 23% since January, but many others have tumbled far more. For instance, PC-component leaders AMD and Nvidia have seen their stocks sink about 60% in the same period.
With steep declines in the market, tech companies faced intense scrutiny over the year. Apple is among those affected, as investors have taken out their uncertainty on the company's stock.
Declines in tech
Many tech companies suffered the misfortune of having their 2022 financials compared to those of last year, when demand in the industry hit an all-time high for multiple businesses. The COVID-19 lockdowns in 2020 and 2021 drove up sales for a variety of tech industries as consumers invested in home offices and entertainment devices by purchasing PCs, game consoles, TVs, and more. As a result, Apple's stock price reached a historic high in December 2021.
However, reopenings in 2022 have been met with increases in cost of living and interest rates, culminating in a perfect storm for the tech industry and severely reducing consumer demand. Moreover, comparisons with the overwhelming highs of the previous year have only exacerbated the declines.
NASDAQ: AAPL
Key Data Points
Apple has fared better than most companies in 2022, but its share price still fell 14% between Sept. 12 and Oct. 11 amid concern that sales for its newest line of iPhones decreased from previous years. On Sept. 7, Apple unveiled its iPhone 14 lineup, which saw the MacBook manufacturer make a change to its smartphone strategy. The company widened the gap between its base and Pro models by adding several new features to the more costly iPhone 14s but keeping the lower-tier models largely the same as the previous year's.
The result has been record sales figures for the iPhone 14 Pro models but dismal demand for the base versions. The cost-effective models were the biggest-selling part of the iPhone lineup in previous years, leading analysts to wonder whether the Pro models can sell enough to make up for Apple selling fewer units overall. For instance, on Sept. 29, Bank of America's Wamsi Mohan downgraded his recommendation for Apple's stock from buy to neutral over weakening demand for the company's smartphones. The revision led Apple's share price to fall 5.1%.
A safe haven
Apple has been seen as a safe haven for tech investors in 2022 because of its ability to retain more of its market value than most other tech companies. September marginally spooked investors concerned that slowing consumer demand might finally be coming after the iPhone company. However, the company still makes up 41% of Warren Buffett–run holding company Berkshire Hathaway's (BRK.A 0.10%) portfolio. The prominent investor's confidence suggests Apple won't be down forever.
Moreover, although Mohan downgraded his Apple recommendation, he said on Oct. 10 that "long-term prospects remain favorable, we see incremental risk to earnings and valuation over the short term given a backdrop of declining consumer demand." Mohan confirmed his long-term confidence in Apple even while discussing slowing demand for iPads after seeing a significant boost throughout the pandemic.
Additionally, it's not all bad news for Apple. On Sept. 1, the company overtook Alphabet's (GOOG +0.06%) (GOOGL +0.34%) Android as theiPhone operating system accounted for more than 50% of U.S. smartphones. As Counterpoint's Jeff Fieldhack points out, "Operating systems are like religions." Once users become accustomed to one, they're unlikely to switch.
The majority market share for Apple is positive, as its walled garden of products is particularly likely to bring people further into its ecosystem after they use just one device. Consequently, the more iPhones out in the wild, the more consumers will likely purchase Apple products down the road.
Apple's stock will likely sink if consumer demand has truly slowed and fears of a recession rise. However, the company continues to be an excellent long-term buy. Apple's products are some of the most popular in their respective markets and will help the company bounce back. The only question is when.
