Lately, Apple Inc. (NASDAQ:AAPL) has been struggling to keep the good times rolling, just like many of its large cap tech peers.
Some of this can be attributed to the run big tech has had since the beginning of the year.
It seems the Trump rally, which began in November 2016, lit a fuse on Wall Street and the expectation was that a Republican majority in Congress and a Republican president would sweep away menacing legislation and build a business-friendly tax code.
One of the hopes with AAPL, which holds about $180 billion outside the U.S. to avoid paying domestic corporate taxes, was to repatriate that money and put it to work in the U.S. economy. In total, there’s about $1.4 trillion offshore by U.S. companies, but AAPL has the largest share.
Big tech wasn’t in on the beginning of the rally. Financials and healthcare stocks were the ones that the Street expected to win the most the soonest. But, as the new administration took over, it became apparent that this dawn of a new business age wasn’t going to arrive as fast as most had hoped.
Healthcare legislation stalled. Tax reform was put on hold. Infrastructure stimulus all but disappeared. Political in-fighting became the status quo. Investors saw, once again, that words and actions from politicians are two entirely different things. And, no matter what the president wants, Congress controls the agenda and the purse strings.
That’s when the market began to re-adjust. And, the one sector that looked safe and promising was tech, big tech in particular. According to Bloomberg, the Nasdaq 100 has rallied more than any other index in 2017 so far.
What This Means for AAPL Stock
AAPL stock is up 24% year to date, and most of the big names have joined it. But, in recent weeks, big tech, and AAPL in particular, has lost its allure.
In AAPL’s case, iPhone 7 sales have been sluggish. Chipmaker QUALCOMM, Inc. (NASDAQ:QCOM) has sued AAPL regarding royalty issues on its chipsets. Plus, the fingerprint ID feature on the new iPhone 8 has hit a snag and doesn’t look like it will be resolved before the 8 is released.
There’s also concern that its desktop and tablet businesses are slowing, which puts more pressure on every new iPhone launch. That means bad news for iPhone sales is bad news for AAPL stock.
However, what most people are overlooking is AAPL’s Services division, which includes its cloud, music and pay services groups. Last quarter, it pulled in $7 billion in revenue. That makes it almost twice the size of Amazon.com Inc.’s (NASDAQ:AMZN) legendary cloud services division, AWS. And, AAPL just signed a deal with Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) to support its cloud, taking business away from AMZN.
AAPL is transitioning to more than just a hardware company, but this has not really hit investors’ radar, yet. Its recent slump isn’t a reason to worry, it’s a reason to celebrate for any investor looking to get into this long-term juggernaut.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
