On September 12, the world’s attention will again focus on consumer technology stalwart Apple (NASDAQ:AAPL) as it unveils its newest products. Typically, such events offer a showcase to demonstrate Apple’s supremacy in the smart products realm. However, this time around, the occasion may represent a broader economic litmus test. I am neutral on AAPL stock.
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AAPL Stock Needs a Big Win
Rumored to be on tap for the upcoming showcase is the latest iteration of Apple’s flagship product iPhone. As TipRanks reporter Marty Shtrubel noted, observers expect the iPhone 15 to be unveiled during the annual event. While analysts usually put Apple under pressure to deliver, the stakes are much higher this time. With the global consumer economy struggling, the tech giant really needs to fire on all cylinders.
To be sure, it’s risky to doubt Apple. As Evercore analyst Amit Daryanani stated, “The durability of iPhone growth in recent years has surprised investors as the consensus view a few years ago was that the iPhone had peaked.” While the smartphone industry appears to have peaked, the iPhone continues to show “an impressive ability to gain share both domestically and abroad,” added Daryanani.
Unfortunately, Apple may become a victim of its own success, thus hurting AAPL stock. With the company attaining about 75% of China’s smartphone market share, for example, growth in that nation will be difficult to achieve. Therefore, the iPhone 15 must be exceptionally compelling to move the needle.
That’s especially the case in the U.S. Following the COVID-19 crisis, the economy rebounded rather impressively. However, with headwinds like stubbornly elevated inflation taking their toll, consumers may decide to skip out on nice-to-have, unnecessary tech upgrades.
Of course, AAPL stock could blossom if the response to the iPhone 15 is robust. However, with consumer debt skyrocketing, households may, as a matter of prudence, elect to abstain from excessive purchases.
The Smart Money Points to Risk Mitigation
Again, history has shown that betting against AAPL stock tends to be a fool’s errand. However, the smart money genuinely appears to be concerned about Apple stumbling over the next several months. With options transactions implying risk mitigation, retail investors would do well to approach AAPL cautiously.
First, TipRanks’ options chain for contracts expiring on June 21, 2024, provides a big warning to market participants. Specifically, the open interest for out-of-money (OTM) call options comes out to 62,435 contracts. On the other side of the equation, open interest for OTM puts stands at 92,151 contracts. Cumulatively, more traders are actively betting that AAPL stock will slip rather than rise.
Second, the “volatility smile” of AAPL stock indicates that traders see greater risk to the downside than they do the probability of movements to the upside. A volatility smile is a graph that plots the strike price and implied volatility (IV) of a particular asset’s options contracts. Further, this indicator takes into account expiration dates.
Conspicuously, the IV of AAPL options with a strike price of $265 sits at 0.38. However, the IV of AAPL options with a strike price of $120 stands at 0.61. In other words, traders expect Apple to hit $120 more than they expect it to reach $265. Considering that AAPL stock presently carries a price of $189.46, the smart money is baking in the possibility of disappointment.
Apple Continues to Fight Hard
In fairness, investors shouldn’t walk away from this discussion believing that AAPL stock is doomed. On the contrary, Apple recently delivered solid results for its third quarter of Fiscal 2023. While sales of $81.8 billion were in line with analysts’ expectations, earnings per share clocked in at $1.26, beating the consensus EPS target of $1.20.
As well, Apple CEO Tim Cook stated that the company achieved a milestone by ending Q3 with over a billion subscriptions. Further, the Wearable, Home, and Accessories unit posted revenue of $8.28 billion, a slight but important increase from $8.08 billion in the year-ago quarter.
Is AAPL Stock a Buy, According to Analysts?
Turning to Wall Street, AAPL stock has a Moderate Buy consensus rating based on 22 Buys, eight Holds, and no Sell ratings. The average AAPL stock price target is $208.13, implying 9.85% upside potential.
The Takeaway: AAPL Stock Faces a Massive Challenge
While Apple’s product launches always generate buzz, this year’s edition comes with great consequences. Against a rough backdrop for the consumer economy, the company must prove sustained relevance with a compelling showpiece. Otherwise, it’s possible that AAPL stock may suffer the consequences.
