The announcement of the 90-day tariff pause with China turned into a boon for tech stocks, as the indexes spiked higher. One of the more notable cheerleaders is Dan Ives, senior equity research analyst at Wedbush Securities. Ives went so far as to call this a "dream scenario" for Apple (AAPL -0.07%).
But is that truly the case? Nobody questions the market leadership of the iPhone and the iOS ecosystem, and a trade deal with China should bring more certainty to its supply chain.
Still, Apple recently lost its market cap lead to Nvidia, which is now just behind Microsoft's $3.35 trillion capitalization. A deeper dive into Apple may call into question its value proposition. Thus, investors need to take a closer look at the stock to know whether it could still be a buy.
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The new case for Apple
On the surface, Ives is likely right to take a more bullish view on Apple amid the U.S.-China trade talks. For all its efforts to diversify, the iPhone still made up 53% of the company's revenue in the first six months of fiscal 2025 (ended March 29).
Although Apple has begun to move some of its manufacturing to India, it still makes the majority of iPhones in China. That means a trade war with that country could bring a sustained and extremely painful adjustment for the company.
Moreover, Apple claims approximately $157 billion in liquidity, likely giving it more optionality than any public company except for Warren Buffett's Berkshire Hathaway.
That position gives Apple power to weather storms such as a U.S.-China trade war. It also allows the company to continue innovating in artificial intelligence (AI) and other cutting-edge technologies. To that end, it is already developing chips to power technical improvements for MacBooks, iPads, AirPods, and Apple Watches. When combining that with the iOS ecosystem, Apple is unlikely to lose its position among tech's top stocks.
Signs of trouble
However, Ives' bullish call may have overlooked the serious shortcomings that led to Apple losing its market cap lead.
For one, the immediate agreement with China is a 90-day pause on tariffs, not an agreement that takes the issue off the table. Hence, investors should likely prepare for this issue to return to the forefront in the coming months.
Also, even though the $3.2 trillion company should remain a force in its industry, investors have likely begun to notice Apple's relative lack of innovation. Yes, it looks poised to enter the smart glasses market, and the improvements in existing products could prompt some customers to upgrade.
Nonetheless, when it comes to AI leadership, analysts often do not mention Apple. Additionally, the company never fully replaced Steve Jobs as an innovator, so it has to scramble to stay competitive in its existing markets.
Consequently, revenue in the first two quarters of fiscal 2025 was $220 billion, an increase of 4%. That led to a net income of $61 billion for the same period, 6% higher than year-ago levels. While these are still increases, it shows Apple is no longer the growth name it was in the past.
Finally, investors have to contend with its valuation. At a P/E ratio of 33, it has become significantly more expensive than in the 2010s, when its earnings multiple rarely exceeded 20. Between the single-digit earnings growth and its ongoing struggles, investors may question why Apple stock deserves such a premium.
Should investors heed Ives' bullish call on Apple?
Given the stock's current condition, investors should continue to treat Apple as a hold.
The tariff pause brings a sigh of relief for the company, and with the enduring popularity of Apple's products and ecosystem, it will probably maintain a major presence in the industry. Still, a permanent tariff agreement is not in place, making it likely that the issue will soon resurface.
Moreover, a single-digit growth rate on its profits and the loss of its market cap lead are significant signs of the company's maturing. Considering that it is also less of an innovator and maintains a relatively high P/E ratio, investors should probably take Ives' optimism with a grain of salt and refrain from adding shares of Apple stock.
