What’s taken a bite out of Apple shares?

Its iPhones and Macs have revolutionised tech, but recent investors are nursing heavy losses. So . . .

THE interior of the vast shop resembles the foyer of a hip, five-star hotel. The desirable nature of the goods on offer is underlined by the security personnel positioned at the entrance.

It is 10.15am and the Apple store on Regent Street, London, is open for business. Eager customers are milling around the displays of AirPods, iPads, iPhones and the rest.

This air of untouchable success is at variance with the Apple share price. In January, the US tech titan was worth $3 trillion, the first US company to achieve this status. But its market capitalisation is now $2.3 trillion.

The shares are down 20pc, as analysts downgraded estimates for third-quarter sales and profits in response to soaring costs and weakening demand.

Apple, which 15 years ago revolutionised mobile telephony with the first iPhone, today supplies us with a range of sleek devices. It also offers the Apple+ streaming service in whose dramas, such as The Morning Show, its merchandise features prominently. How did it lose its edge? A question you will be asking if you hold the shares directly or have money in funds with stakes in Apple, such as AXA Framlington Global Technology, Polar Technology or T Rowe Price US Large Cap Growth.

PRoBLEMS at Apple’s Chinese manufacturing operations are just one cause. The citizens of China are also less keen on the iPhone. And markets reckon that higher interest rates lessen the allure of tech companies’ future revenues.

In the early years of this decade, the promise of these revenues propelled growth stocks like Apple and the other Faangs, the name given to Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet). These stocks, which thrived during lockdowns, have been displaced in investors’ affections by ‘value’ stocks, which are cheap, but believed to be full of recovery potential.

The threat of legislation has also hit Apple shares. Laws could take a slice off the income that Apple makes when third-party apps are downloaded from its app store, an activity that made up 26pc of firstquarter sales.

However, some argue that Apple is anything but a has-been stock.

Apple is profitable. It also possesses a $73bn (£61bn) cash pile, making it a ‘quality growth stock’, which could prove more resilient in a recession. US bank JP Morgan has declared the angst overdone, and set a $200 target for shares, which are currently $141.

Some even contend that Apple should be considered less a tech company and more a luxury goods business, given the expensiveness of its devices.

Apple, meanwhile, is wooing consumers with a deluge of launches. These include four iPhone 14 models, a virtual reality headset and Macs fitted with super-fast chips. This flurry of innovation – as much Apple’s trademark as its bitten apple logo – will incline some long-term fans to retain the shares, still four times higher than five years ago.

James Yardley of Chelsea Financial Services says: ‘I own Apple shares, and plan to do so for many more years to come.

‘How many people give up an iPhone to buy Android?’

Warren Buffett is the most famous enthusiast. Apple shares make up 40pc of his Berkshire Hathaway fund, although he is yet to upgrade from the iPhone 11.

I am one of the very few who did give up iPhone (overpriced, in my opinion) for Android. But I am more open to shares in Apple and other members of the Faangs like Alphabet – whose empire encompasses Android – and Microsoft. Gerrit Smit, manager of the Stonehage Fleming Global Best Ideas Equity Fund, says: ‘The digital revolution is expected to continue growing – at a compounding rate of a fifth. Both Alphabet and Microsoft share directly in this growth through their cloud and software businesses.’

The UK Competition and Markets Authority may be investigating Microsoft’s $69bn (£57.4bn) purchase of Activision, the games firm, a move that exemplifies the regulatory and other obstacles facing Apple and its peers.

But the current climate seems to be more likely to increase rather than diminish the use of technology. This shift will be managed by people drawing up designs on iPads – and talking, texting and messaging on the latest iPhone.