The "Magnificent Seven," a group of highly acclaimed tech companies, have had very different fortunes this year. Apple (AAPL 0.96%) has been one of the worst-performing of the bunch, only outdone by Tesla among its peers in this rather unenviable category.
Investors haven't been thrilled with Apple's financial results, but the company just ran into another significant regulatory headwind that won't make it more popular on the street. Let's look into whether or not investors should give up on Apple stock.
Antitrust concerns once again
Apple and other members of the Magnificent Seven have been under scrutiny for years for alleged antitrust practices. These tech giants have achieved their success, so the argument goes, partly by unlawfully stifling the competition and making customers worse off than they otherwise would have been. On March 21, the U.S. Department of Justice, joined by no less than 16 states, filed an antitrust lawsuit against Apple, accusing the company of maintaining an illegal monopoly in the smartphone market.
Apple has done so in various ways, according to the lawsuit. For example, communication (including texting and sending pictures) between iPhones and other smartphone brands isn't nearly as smooth as between iPhone users. Apple's App Store also comes with unreasonable fees for app developers, not to mention that the tech giant has suppressed innovation on its platform, the suit also claims. Those are just some of the allegations brought forth by the DOJ going after Apple's most important moneymaker: the iPhone.
Don't jump ship -- yet
It's too early to know the outcome of this lawsuit. It could drag on for years. Thankfully, Apple has the funds to handle this kind of litigation. The company generates tens of billions in free cash flow. Plus, the tech giant is not new to fierce legal battles although this might be one of the most important it has faced in its long and storied history.
NASDAQ: AAPL
Key Data Points
So what should investors do? In the parlance of Wall Street, I'd assign Apple stock a "hold" rating for now. That is, though I wouldn't advise investors to sell off their shares, I'd also be cautious about increasing one's position following the dip. The reason for this approach goes beyond Apple's recent legal troubles. In addition, the tech giant seems to be trailing several of its peers in the next massive growth industry: artificial intelligence (AI).
Apple is rumored to be planning several moves. And given the company's reputation, that of taking existing technology, transforming it into an even better version, and being massively successful at it, Apple is still in the race. It's impossible to ignore the company's brilliantly innovative track record. But as of now, the company's direction in the AI market remains somewhat unclear.
Meanwhile, the iPhone, though still its biggest source of sales, is no longer the growth driver it once was, not even close. Though its services segment is growing in importance and boasts incredible margins, it still makes up a relatively small percentage of Apple's total revenue. Apple has an installed base of more than 2 billion devices, but depending on the outcome of the DOJ's lawsuit, its ability to monetize its ecosystem could change drastically.
The combination of these headwinds is why Apple isn't a screaming buy on the dip right now.
