Apple's (AAPL 0.51%) stock declined nearly 30% in 2022 as investors fretted over the tech giant's persistent supply chain issues in China. A lack of clarity regarding its roadmap beyond the aging iPhone, which still generated 52% of its revenue in fiscal 2022 (ended in September 2022), and inflationary headwinds exacerbated that uncertainty.
But could Apple's stock bounce back in 2023 as it resolves its supply chain problems and rolls out new products and services? Or will it continue to be held back as investors pivot toward other blue-chip tech stocks?
Image source: Apple.
Why was 2022 so challenging for Apple?
In fiscal 2021, Apple's revenue and earnings per share (EPS) jumped 33% and 71%, respectively, as the company finally entered the 5G race with its iPhone 12 family of smartphones. That long-awaited launch sparked an upgrade cycle throughout 2021 that nearly matched that of the best-selling iPhone 6 and 6 Plus in 2014.
However, that growth also set Apple up for tough year-over-year comparisons in fiscal 2022 as fewer people bought the iPhone 13. At the same time, the global chip shortage and China's "zero-COVID" policies disrupted its supply chain throughout the entire year. As a result, Apple's revenue and EPS only rose 8% and 9%, respectively, in fiscal 2022.
That cyclical slowdown wasn't surprising, but several other events in China rattled investors as fiscal 2023 started. In November 2022, Foxconn (Apple's main contract manufacturer) was disrupted by protests regarding its COVID-19 policies and unpaid bonuses at its largest iPhone plant in Zhengzhou, China. Apple subsequently reduced its annual production target for its iPhone 14 Pro and Pro Max models from 90 million to 87 million units to account for those disruptions.
China's government then loosened its COVID-19 restrictions in response to a wave of anti-lockdown protests across the country. That decision might generate some near-term tailwinds for China's sluggish economy, but it could also generate fierce headwinds if rising infection rates and deaths disrupt the country's supply chain and consumer spending.
Those unpredictable issues make the Greater China region -- which accounted for 19% of Apple's sales in fiscal 2022 -- a soft spot for the company. Inflationary headwinds across the world could also curb the market's appetite for the company's pricier hardware devices and subscription-based services.
Faced with all these challenges, analysts expect Apple's revenue and earnings to only increase 3% and 2%, respectively, in fiscal 2023. Even after its year-long decline, Apple's stock still doesn't look cheap relative to those growth rates at 21 times forward earnings and 5 times this year's sales.
Why 2023 could be a brighter year for Apple
Apple's supply chain problems are daunting, but it's been taking steps to shift some of its production to Vietnam and India instead. It also plans to source its future iPhone and Mac chips from Taiwan Semiconductor Manufacturing's new plant in Arizona instead of the chipmaker's top-tier plants in Taiwan. Those changes won't bear any fruit until 2024 and 2025, but they'll likely reduce Apple's long-term dependence on China.
China also expects its COVID-19 cases to peak in early 2023, which suggests the current supply chain and consumer spending headwinds should wane in the second half of the year.
Meanwhile, analysts' forecasts for fiscal 2023 still don't account for any of Apple's upcoming products and services. Apple is expected to launch a new "mixed reality" headset in the second half of 2023, and that new gadget could generate a fresh stream of hardware revenue while expanding its software and services ecosystem into the VR, AR, and metaverse markets.
Apple's paid subscriber base, which expanded from 745 million in fiscal 2021 to more than 900 million in fiscal 2022, should also continue to grow in fiscal 2023 as Apple Music, Apple TV+, Apple Arcade, Apple Fitness+, and its other digital services gain more momentum. That expansion should lock in its hardware users, enable it to challenge a broader range of companies (including Spotify, Netflix, Amazon, and even Peloton) and squeeze out more revenue per customer to offset its slower hardware sales.
Lastly, Apple still generates plenty of cash. The company ended fiscal 2022 with $169 billion in cash and marketable securities, so it might surprise investors with some big acquisitions over the next 12 months. Buying a media or video game company to expand its services ecosystem makes sense right now, since a lot of those stocks are on sale, and could help it keep pace with Amazon's big moves in both markets. It will also likely continue its streak of $550 billion in buybacks over the past decade.
Where will Apple's stock be in a year?
Next year, Apple probably won't return to its all-time high of $180.73 from January 2022 -- which would require a rally of more than 40% from its recent price.
But the downside potential should also be limited as investors focus on its gradual supply chain improvements, upcoming products, the expansion of its services ecosystem, and its consistent buybacks and dividends. I'm not expecting explosive gains, but I believe Apple's stock will stabilize and gradually rise throughout 2023 as investors again prioritize the company's long-term strengths over its near-term challenges.
