www.gurufocus.com Open in urlscan Pro
172.67.29.187  Public Scan

Form analysis
0 forms found in the DOM

Text Content

🚀 Enjoy a 7-Day Free Trial Thru Dec 30, 2024! ✨
Sign Up
Login
Free Sign-up Login 7-Day Free Trial

Home
Homepage Membership Levels About Us General Discussion Complete Stock List The
book Membership Data Coverage Founder's Message 10-Year Letter 20-Year Letter
Free Trial Referral Program Partner Program GuruFocus Podcast
Screeners
GuruFocus Screeners
All-In-One Screener Strategies Created by Users Ben Graham Lost Formula Canadian
Faster Growers CEO Buys CEO Buys after Price Drop > 20% Dividend Kings 2024
Dividend Aristocrats 2024 Dividend Growth Portfolio Dividend Income Portfolio
Fast Growers Good Companies Hedge Fund Guru Top 10 Aggregated High Quality High
Quality Low Capex w ROE ROC min High Quality & Low Capex High Yield Insider Buys
Historical High Dividend Yields International Gurus' Top Holdings James Montier
Short Screen Margin Decliners Mega Caps Peter Lynch & Warren Buffett Peter Lynch
Growth w Lower Valuation Peter Lynch S&L Traded Below Book PFCF Screener
Piotroski Score Screener Predictable Growth Companies Profitable predictable
margin expanders Stocks Sold w less Cash The Stalwarts
My Screeners
Create My Screener
Value Screens
Stock Ideas All-In-One Screener S&P 500 Map S&P 500 Bubble S&P 500 Aggregate
Buffett-Munger Screener Industry Overview Undervalued Predictable Benjamin
Graham Net-Net 52-week/3Y/5Y Lows 52-week/3Y/5Y Highs Magic Formula(Greenblatt)
Dividend Stocks Peter Lynch Screen S&P500 Grid Predictable Companies Spin Off
List Merger and Acquisition List Historical Low P/B List Historical Low P/S List
High Short Interest Upcoming Special Dividends Delisted Stocks
Model Portfolios
Performances Overview Most Broadly Held Portfolio Most Weighted Portfolio
Buffett-Munger Top 25 GF Score <= 100 Top 25 Top 25 Undervalued Predictable Top
25 52-week Low Predictable Top 25 Historical Low P/S
Stock Comparison
Airline Stocks Artificial Intelligence Stocks Bank Stocks Biotech Stocks
Blockchain Stocks Chinese Stocks Dividend Stocks EV Stocks Growth Stocks Oil
Stocks Value Stocks Virtual Reality Stocks Compare More Stocks…
Gurus
Guru Trades
Latest Guru Picks Real Time Picks Guru Portfolio Score Board Mutual Funds Top 10
Holdings Sector Picks International Picks Aggregated Portfolio Consensus Picks
Guru Bargains Hot Picks Download Guru Portfolios Industry Trends Geographic
Trend ETFs Options Holdings European Shorting
Guru Lists
Complete Guru List Warren Buffett Bill Gates Mohnish Pabrai Carl Icahn George
Soros David Tepper Seth Klarman Bill Ackman Joel Greenblatt Charlie Munger
Michael Price Julian Robertson Chuck Akre David Einhorn Tom Gayner
My Guru Lists
Insiders
Insider Trading Tracker
Real-Time Insider Picks CEO Buys/Sells CFO Buys/Sells Insider Trends Insider
Cluster Guru + Insider Double Buys Triple Buys/Sells Canadian Insider Chinese
Insider German Insider Complete Insider List
Politician Trading Tracker
Real-Time Politician Picks Complete Politician List Nancy Pelosi Mitch Mcconnell
Tommy Tuberville Josh Gottheimer Kevin Hern Thomas R. Carper Susie Lee Lois
Frankel
Market
US Market Valuation
Buffett Indicator U.S. Treasury Yield Curve U.S. Inflation Rate Presidential
Cycle and Stock Market Shiller P/E Shiller P/E by Sectors GF Value for S&P 500
Index Fed Net Liquidity Buffett Assets Allocation Latest IPOs
Global Market Valuation
Major Stock Market Indices Performance Global Market Overview USA China Japan
India Canada UK France Germany Brazil Australia More...
Economic Indicators
Economic Indicators Overview Commitments of Traders Reports The Dow Jones
Industrial Average (DJIA) SP 500 Index Nasdaq Composite Index Gross Domestic
Product (GDP) Shiller PE Ratio of Wilshire 5000 over GNP Civilian Unemployment
Rate Russell 2000 Index CBOE Volatility Index (VIX) Total Nonfarm Payrolls: All
Employees More...
Sector & Industry Performance
Global Industry Overview USA Asia Europe Canada UK/Ireland Oceania Latin America
Africa India/Pakistan
Articles
Articles
Editors' Picks Stock Market News Q&A with Gurus Guru Stock Picks Insider
Transaction Earning Reports Podcast Earnings Call Transcripts Software Stock
News Biotechnology Stock News Hardware Stock News Banks Stock News Metals &
Mining Stock News Drug Manufacturers Stock News Instant Alerts Press Release All
Articles
Submit Articles
Submit Article Online Contributor Guidelines
Tools
GuruAI Model Portfolios All-In-One Screener Data Batch Download Guru Portfolio
Download Insider Data Download Excel Add-In Google Sheets Add-On API Manual of
Stocks DCF Calculator WACC Calculator Interactive Chart Maps Fund Letters
Archive Stock Comparison Table Mobile App Discussion Board Financial Calendar
Embed Widgets Stock Market Holidays
Discussion
All Topics General Discussions Investment Ideas Strategies Article Comments
Books Feedback
Data
Pricing
Tutorials
Tutorials Financial Glossary FAQ Change Log Contact Us
Support
Chat Support Create a ticket Book Demo User Engagement Meeting 469-248-6885
Status Take Survey
Subscribe
Free Trial Group Subscription Refer a Friend and Earn One Month of Free
Membership
0




Book Demo
7-Day Free Trial
/

GURUFOCUS.COM Latest News U.S. Hardware AAPL


APPLE IS MODESTLY OVERVALUED DESPITE POTENTIAL MARGIN PRESSURE AND GURU SELLING


APPLE'S EXCESSIVE VALUATION IS UNJUSTIFIABLE DUE TO PEAK MARGIN CONCERNS AND
COMPETITIVE RISKS.


Grahamites Follow
7 days ago

Summary
 * Apple's stock is at an all-time high despite significant selling by investing
   legends like Warren Buffett and Li Lu, indicating potential overvaluation
 * Apple's gross margin has reached a 15-year high, driven by 5G adoption,
   increased sales in China, and a growing services business.
 * Future gross margin pressures include lengthening iPhone upgrade cycles,
   intensified competition from Huawei in China, and rising production costs due
   to geopolitical factors.
 * Despite these risks, the market remains overly optimistic about Apple's
   stock.



Apple (

AAPL, Financial) has reached an all-time high recently, even though investing
legends including

Warren Buffett (Trades, Portfolio),

Li Lu (Trades, Portfolio), and Duan Yongping have been significantly cutting
their stakes in the company. It is very interesting to see the divergence
between the guru's actions and Apple's stock price. I think Apple's stock is
undoubtedly overvalued at the current price. The market might be overlooking the
potential decline of Apple's gross margin in the smartphone business in the next
few years. In this article, I will analyze the factors with the biggest impact
on Apple's gross margin trend and share my thoughts on Apple's valuation.


WHY APPLE'S GROSS MARGIN IS UNSUSTAINABLE.

Historically, Apple's gross margins can be volatile mostly due to product mix,
supply chain dynamics, and foreign currency movement. However, since 2020,
Apple's gross margin has increased dramatically, reaching a 15-year high of
46.2% for FY2024.



The sharpest increase in gross margin on a year-over-year basis occurred in FY
2021, when Apple's gross margin increased from 38.2% to 41.8%.



The spike in gross margin in FY 2021 can be attributed to three major factors.
Firstly, the mass adoption of 5G phones in 2020 drove a wave of upgrades, which
resulted in the surge of iPhone's sales in 2021 worldwide. Secondly, Apple's
sale in China skyrocket by 70% in 2021 as Huawei, Apple's biggest competitor in
China, faced chip shortages due to U.S restrictions.



Thirdly, Apple's services business, which has a much higher gross margin than
the products business, has been contributing more to Apple's overall revenue.



Looking ahead, two of the aforementioned factors face significant uncertainties.
First of all, Apple has created the hype that starting in 2025, the introduction
of AI-enabled phones will drive another wave of iPhone upgrades. However, AI is
unlikely to be a significant game changer for iPhone compared to the 5G upgrade.
On the other hand, there is no clear timeline for the mass adoption of 6G
technology. It is expected that the large-scale 6G smartphone replacement cycle
will not happen until 2028-2030. Therefore, I think Apple will inevitably face a
lengthening of product life-cycle in the next 5-6 years, which create gross
margin pressure for the product business as well as the related services
business.

Secondly, in the Chinese market, the competition between Huawei and Apple will
become more intense in the future. Since Huawei launched the Mate 60 series last
year, it has continuously taken Apple's market share in the high-end smartphone
market. Huawei recently launched two high profile products, the tri-fold Mate
XT, and the flagship Mate 70 series. Both became instant best-sellers in China.
Apple responded with significant promotions staring from the second quarter of
2024, with prices of various models reduced by 8-10% in e-commerce channels. It
is very unusual for Apple to get involved in price wars to attract customers. I
think this is a clear sign that Apple will struggle in China.

Another factor that may lead to lower gross margin is the cost pressure. Most
notably, TSMC (Taiwan Semiconductor Manufacturing) has a monopoly in the
manufacturing of the most advanced chip used in smartphones. In addiition,
TSMC's U.S fabs have higher costs than its Taiwan fabs and Apple has agreed to
source from TSMC's U.S fabs for at least a portion of its total iPhone
production. Therefore, Apple's cost of chips is almost guaranteed to increase in
the future. Furthermore, it is reported that India has a higher cost than China
in terms of the assembly of iPhone due to the lower yield. However, Apple has to
shift more production to India due to geopolitical factors. This will also add
to the cost pressure.


APPLE IS MODESTLY OVERVALUED DESPITE MARGIN PRESSURE AND GURU SELLING

It is extraordinary that even with the potential margin pressure, Apple' stock
is at all time high. The market simply shrugs off any bad news or concerns.
Apple has a GF Value Score of 5 out of 10. Almost all of Apple's valuation
metrics are either at the historic high or close to historic high.

On a DCF basis, even if we use a very conservative 10% discount rate to account
for Apple's high quality and a fairly optimistic FCF growth rate of 13.7%, Apple
is worth only $158 per share, significantly below the current market price. At
the current market price, Apple's stock provides very little margin of safety.

To justify Apple's current stock price, Apple would have to grow its FCF per
share at 20% for the next 10 years. I think this is almost impossible given
Apple's size and the competitive dynamics.



It looks like Buffett and

Li Lu (Trades, Portfolio) both think Apple is overvalued as well. According to
the most recent filings, Buffett has cut his Apple stake by almost 2/3, and

Li Lu (Trades, Portfolio) sold almost 60% of his holdings in Apple.



Granted, both Buffett and

Li Lu (Trades, Portfolio) still hold some Apple shares. Historically they rarely
sold at the exact high price. However, their actions are very telling.


CONCLUSION

While Apple's stock has reached all-time high, an analysis of Apple's past gross
margin trends and the factors affecting the company's gross margin signals
troubles ahead. The potential slowdown in iPhone upgrade cycles, Huawei's
competitive threat in China, and rising cost pressures could all lead to a
decline in Apple's gross margins. Despite these risks and heavy selling
activities by investing gurus like

Warren Buffett (Trades, Portfolio) and

Li Lu (Trades, Portfolio), the market remains overly optimistic about Apple's
future. Based on a comprehensive valuation analysis, Apple's stock appears to be
modestly overvalued, with little margin of safety for investors.


DISCLOSURES

I/we have no positions in any stocks mentioned, and have no plans to buy any new
positions in the stocks mentioned within the next 72 hours. Click for the
complete disclosure

GuruFocus Premium Membership
30 Years of Financial Data
Unlimited Filters in All-in-One Stock Screener
Earnings Calls & Stock Analysis
Customizable Stock Dashboard
Real-Time Insider Trading Alerts
8,000+ Institutional Investors’ 13F Holdings
Excel & Google Sheets Integration
Quick Customer Support
And Much More...
Start 7-Day Free Trial



AAPL CHART


GF VALUE: $188.75


No enough data to display.
GuruFocus has detected 7 warning signs with AAPL
AAPL 30-Year Financial Data
The intrinsic value of AAPL
Peter Lynch Chart of AAPL


RELATED TICKERS



Ticker

Ticker



AAPL

Ticker
Price
Day's Change %
Price Change

Ticker
Price
Day's Change %
Price Change



AAPL
$254.49
1.88
4.70


RELATED ARTICLES


AEM

NEM

GOLD

KGC

PAAS
Agnico Eagle Mines: A Good Quarter
Fun Trading Nov 26, 2024

GOLD

NEM

AEM

PAAS
Barrick Gold: A Risk Profile Elevated
funtrading Nov 20, 2024

PAAS

GOLD

NEM

AEM

FSM

CDE

HL

SLV

GDX
Pan American Silver: Potential Escobal Mine Reopening Offers Investing
Opportunity
Fun Trading Dec 08, 2024

KGC

GOLD

AEM

NEM
Kinross Gold: Fort Knox Adds Manh Choh Production
Fun Trading Dec 01, 2024

ASML

MSFT

GOOG

GOOGL

AMZN

NVDA

AMD

TSM

AAPL

INTC
ASML: The EUV Lithography Giant Navigating Challenges
Renato Neves, CFA Dec 02, 2024

NKE
Nike Is Cheap Despite Recent Challenges
Grahamites Dec 02, 2024

FCX

SCCO

AEM

NEM
Freeport McMoRan: Uncertainty at the Grasberg Mine.
Fun Trading Dec 12, 2024

SNOW
Snowflake Inc Projects Huge Free Cash Flow Margins This Year
Mark Hake, CFA Nov 22, 2024

CELH

PEP

MNST
Celsius: Can this Disruptor Sustain Its Momentum?
Renato Neves, CFA Nov 17, 2024

WFC
Wells Fargo & Company: Analysis of the Banking Giant
Hammad Sadiq Nov 27, 2024

--------------------------------------------------------------------------------



Research Tools
All-In-One Screener Stock Ideas Stock List Guru List Guru Real-Time Picks
Insider List Insider Trades Economic Indicators Sector & Industry Performance
DCF Calculator Discussion Board
Product
Pricing Plans Excel Add-In Google Sheets Add-on Data API Stock Comparison Table
Manual of Stocks Instant Alerts Mobile App 中文
Education
Financial Glossary Tutorials FAQ Schedule Free Session Buffett Indicator Shiller
P/E Yield Curve Today U.S. Inflation Rate Global Market Valuation Fed Net
Liquidity Buffett Assets Allocation
Company
About GuruFocus Career Contact Us Advertise Site Map Term of Use Privacy Policy
Referral Program Partner Program
Survey

We'd love to learn more about your experiences on GuruFocus.com and how we can
improve!

Take Survey
Follow Us


Disclaimers
GuruFocus.com is not operated by a broker or a dealer. Under no circumstances
does any information posted on GuruFocus.com represent a recommendation to buy
or sell a security. The information on this site, and in its related
newsletters, is not intended to be, nor does it constitute investment advice or
recommendations. The individuals or entities selected as "gurus" may buy and
sell securities before and after any particular article and report and
information herein is published, with respect to the securities discussed in any
article and report posted herein. Gurus may be added or dropped from the
GuruFocus site at any time. In no event shall GuruFocus.com be liable to any
member, guest or third party for any damages of any kind arising out of the use
of any content or other material published or available on GuruFocus.com, or
relating to the use of, or inability to use, GuruFocus.com or any content,
including, without limitation, any investment losses, lost profits, lost
opportunity, special, incidental, indirect, consequential or punitive damages.
Past performance is a poor indicator of future performance. The information on
this site, and in its related newsletters, is not intended to be, nor does it
constitute investment advice or recommendations. The information on this site is
in no way guaranteed for completeness, accuracy or in any other way. The gurus
listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes
are provided by QuoteMedia, Inc. (CSI). Company fundamental data is provided by
Morningstar. Analyst estimates data is sourced from both Refinitiv and
Morningstar, with priority given to Refinitiv data. Data is updated daily.

© 2004-2024 GuruFocus.com, LLC. All Rights Reserved.
AI