Apple (AAPL -1.14%) has undeniably provided life-changing returns to its long-term shareholders. The company's innovative streak and powerful brand have been key factors behind its performance.
But is the party over for the tech giant? Apple has encountered some headwinds this year, particularly tied to tariffs and President Trump's trade wars. The stock has suffered, and considering it's worth $3.5 trillion, some see little upside ahead for the iPhone maker.
However, looking at some precedents, as well as Apple's own business, can help paint a clearer picture.
Image source: Getty Images.
Apple has survived these troubles before
Whether it's due to the potential impact of tariffs or slowing iPhone growth, Apple has seen and overcome obstacles of this kind before.
During Donald Trump's first presidency, the threat of tariffs was also present, though perhaps not as much as it is now. On Jan. 3, 2019, Apple's stock dropped by about 10% after the company lowered its guidance because of weak iPhone sales volume in China, partly resulting from Trump's trade wars. And On Aug. 5, 2019, Apple's shares fell by 5% after Trump announced tariffs on Chinese-imported goods.
In both cases, Apple was able to rebound with flying colors. The stock has beaten the market following these two significant one-day market losses. Apple was, at the time, able to get around tariffs somewhat by negotiating with the administration to avoid -- or at least delay -- punitive duties on its imports.
Regarding the slowdown in iPhone sales in China, the company adopted a multipronged strategy that included slightly cutting prices. The result: Apple managed these roadblocks just fine, its financial results remained strong, and it crushed the market, as per its habit, in the years that followed.
The future is in the subscription business
The usual caveats regarding applying the past to the future are worth keeping in mind, especially since there are some important differences here. Trump's tariffs are even more aggressive this time around, for instance. And investors are also worried that the tech leader is falling behind in the artificial intelligence (AI) race.
Even so, one of the most important points to highlight about how Apple has navigated struggles before is that the company is highly adaptable. It announced local manufacturing efforts, amounting to $600 billion over the next four years, in a move to get back on Trump's good side.
Elsewhere, the company is looking to boost AI investments and attract talent in the field. Apple is close to acquiring PromptAI, an AI startup whose flagship app enhances home security cameras through smart activity detection features. PromptAI features notable names in the field, including its founder, Tete Xiao, who holds a Ph.D. in the field and has published academically.
Even if this acquisition falls through, Apple has generated $96.2 billion in free cash flow over the trailing-12-month period and has the means to buy out more AI talent.
The company generally doesn't rush to launch new products or features. Apple's strength has been its ability to add innovative tweaks to existing technologies and win over consumers, something it has done several times with smashing success. And with a vast and growing installed base of over two billion active devices, the company needs just a few successes to make a meaningful impact on its financial results. Furthermore, Apple's future is in its service segment.
The company has more than a billion paid subscriptions. Launching new services, whether related to AI or not, should allow the company to increase this predictable, high-margin source of recurring revenue. Over the long run, this will decrease Apple's exposure to tariffs and even hardware sales. What should remain is a massive installed base that serves as the basis for subscriptions across a wide range of everyday activities for its customers, from news and TV to health and payments.
The opportunities here are massive, making Apple's prospects attractive despite the headwinds it has encountered. History tells us the company can overcome them. The moves Apple is making today suggest there is a good chance it will overcome them.
