Apple (NASDAQ:AAPL) stock had bad year that just got worse. Already down on the year and sitting near the bottom of the S&P 500 index in terms of performance recently the U.S. Justice Department launched an antitrust lawsuit against the iPhone maker.
News of the antitrust case sent Apple’s stock down 4% in a single trading session, wiping $113 billion from the company’s market value. While things look grim, there’s still reason to keep AAPL stock as a core portfolio holding.
The United States vs. Apple
The antitrust lawsuit accuses Apple of having an illegal monopoly in the smartphone market and using predatory practices to retain its dominant position.
Alleged anticompetitive practices by Apple include limiting non-Apple smartwatch functionality, restricting access to contactless payments for third-party digital wallets, and refusing iMessage compatibility with rival platforms.
The latest antitrust case seeks to dismantle the way Apple’s hardware and software work together on the company’s electronic devices that include the iPhone, iPad, and Apple Watch.
While concerning, it’s important to remember that the lawsuit against Apple is just the latest antitrust enforcement by the U.S. government.
In recent years, the Justice Department has also filed antitrust cases against Alphabet (NASDAQ:GOOG / NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN). Apple is not unique in this matter.
Market commentators roundly criticized the Justice Department’s action, noting that while Apple retains a 62% share of the smartphone market in the U.S., its global share is only about 25%.
The markets were quick to shrug off news of the antitrust action. While AAPL stock initially fell 4% on news of the government lawsuit, it staged a recovery and rose nearly 1% the following day.
The China Problem
On the day the antitrust case was announced, Apple CEO Tim Cook was in Shanghai, China for the opening a huge new store in the city. It’s a $12 million retail outlet that is the second largest Apple store in the world after the company’s flagship location on New York’s Fifth Avenue.
The trip to China was one of several high-profile visits by Cook as Apple tries to reverse a decline in iPhone sales in the nation of 1.4 billion people.
The latest data showed that sales of Apple’s iPhone in China declined 24% during the first six weeks of the year amid rising competition.
In China, Apple faces a major competitive threat from Chinese technology leader Huawei, whose Mate 60 smartphone has become a big hit with consumers and is leading the high end smartphone category in that country.
The decline in China comes as Apple struggles with a broader decline in sales of its electronic devices such as the iPad and MacBook. The declining sales are the main reason that AAPL stock is down 7% on the year.
However, Apple isn’t the only company facing a sales slowdown in China. Leading American companies such as Tesla (NASDAQ:TSLA), Nike (NYSE:NKE) and Starbucks (NASDAQ:SBUX) are also facing challenges.
An AI Lifeline?
Clearly Apple is having a difficult time this year and it’s dragging the stock lower as a result. But the company is not taking the current situation lying down.
In recent months, Apple has launched its Vision Pro augmented reality headset, its first entirely new product since the Apple Watch, is moving its manufacturing base to India from China, and has canceled its long gestating car project.
At the same time, Apple is relying more on services such as banking and streaming to generate revenue amid a slowdown in sales of its devices.
It’s worth remembering that Apple continues to beat Wall Street forecasts on both the top and bottom lines with its financial results. And now, Apple might also be getting an artificial intelligence lifeline thanks to a new potential partnership with Alphabet.
Media reports say that Apple is planning to license Gemini AI technology from Alphabet and use it in iPhones. Gemini is Google’s generative AI tech that runs chatbots and coding assistants.
According to the reports, Apple plans to license the technology from Alphabet and build the Gemini AI engine into future iterations of the iPhone, providing the smartphone with its biggest upgrade in years and giving it a competitive advantage.
Buy AAPL Stock
Admittedly, Apple is going through some difficulties right now and its stock is underperforming, but most of these issues are not the company’s fault, nor is Apple the only concern dealing with them.
The problems Apple faces are short term in nature and likely to resolve themselves in time. What’s important is that Apple is taking steps to right its ship, grow, and innovate.
The move to add AI functionality to the iPhone could give the company and its share price a much-needed boost.
Given its track record of success, it would be foolish to bet against Apple over the long-term. The company has the talent, resources, and experience to get itself back on track. AAPL stock is still a buy and should remain a core holding in investors’ portfolios.
On the date of publication, Joel Baglole held long positions in APPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
