Last year, the Apple (NASDAQ:AAPL) share price went from $125 at the start of January to $192 by the end of December. That’s an outstanding performance, but the stock has started to fall this year.
In general, 2023 was a year of two major themes – pandemic trends unwinding and the rise of AI as an investing focus. But neither of these really accounts for Apple’s strong results.
Business results
Its financial performance was somewhat mixed – both sales and net income were down by 2.8%. But a 3.14% reduction in the company’s share count meant earnings per share increased.
Beneath the surface, though, things have been more interesting. Apple divides its revenues into those that come from selling products and those that involve providing services.
In the second half of the year, revenues from the company’s services division grew to a record $21bn. This is significant – margins in this part of the business are much higher.
To some extent, this helped offset declines in iPhone sales (which are the reason the stock is falling now). But it’s still hard to see how growth in the low-single-digits justifies a 54% share price increase.
Macroeconomics
For Apple, 2023 was a year of two halves (the usual number of halves for a year to have, but you know what I mean). The stock surged during the first six months of the year, but has largely traded sidewise since.
This indicates to me that stock market participants viewed Apple as a defensive position. Its strong balance sheet and competitive position attracted investor capital when the pressure was on.
It’s also significant – in my view – that it underperformed other big tech stocks, including Alphabet, Microsoft, Meta Platforms, and Nvidia. I suspect the reason is AI.
Apple is a little futher removed from the cutting edge of AI than other big tech companies. As a result, it didn’t get quite the same boost.
China
A third issue for Apple has been US-China relations. This was noteworthy in 2023 and looks like an ongoing risk in the future.
Apple relies on China in two main ways. The first is that it’s a big market and the second is that it’s where a lot of the company’s manufacturing base is.
The stock slipped 5% in September as the Chinese government instructed officials not to bring their iPhones to work. And restrictions continued to spread through the rest of the year.
In October, an investigation into Foxconn – a key iPhone supplier – caused the stock to falter further. Despite Apple’s attempts to diversify its manufacturing, investors should take note.
Buy now, or wait?
Apple spent 2023 as a shelter for investors hiding from a potential storm. I think that’s a reasonable move, but it means the stock doesn’t really look like a bargain at today’s prices.
I expect the ongoing share buyback programme to keep driving shareholder value. And the significance of the company’s intangible assets shouldn’t be underestimated.
Even after a retreat in January, I have this as a stock to watch, rather than to buy at today’s prices. I’m an Apple shareholder, but I think there are better opportunities for me at the moment.
