Our theme of Apple Component Supplier Stocks – which includes a diverse set of companies that supply components for Apple’s iPhones and other devices, has declined by about 28% year-to-date in 2022, roughly in line with the broader Nasdaq-100 which is down 27%, although it has underperformed Apple stock (NASDAQ: AAPL), which is down about 22%. So what are some of the trends that are likely to impact the theme in the near-to-medium term?
While surging inflation has prompted the Federal Reserve to hike interest rates at a more aggressive pace, leading to a sell off in growth sectors such as technology, Apple suppliers have also been impacted to an extent by the semiconductor shortage, and Covid-19-related disruptions in China and Southeast Asia. Moreover, Apple’s demand growth is also likely to cool a bit compared to the pandemic period, as the remote working and learning trend eases a bit. Apple revenue is only likely to grow at single-digit levels over FY’22 and FY’23, per consensus estimates, down from 33% growth in FY’21, in spite of new high-end iPad and Macbook launches. These factors are likely to impact the growth rates for Apple’s suppliers, as well, in the near term.
That said, this could be a good time to look at the theme. The semiconductor supply crunch is likely to eventually ease and this could help companies in the theme to an extent. Moreover, the coming launch of Apple’s next-generation iPhone 14 could also help the theme. The new smartphone is expected to feature more substantial upgrades and possibly design changes versus the iPhone 13, boding well for suppliers from both a volume and component content per-device perspective. Moreover, the ongoing transition to 5G wireless networks is also likely to help Apple’s suppliers, who are largely focused on semiconductors, as mobile vendors have been looking to equip their mid-range and lower-end models with 5G chipsets.
With inflation rising and the Fed raising interest rates, Apple has fallen 22% this year. Can it drop more? See how low can Apple stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.