Source: PaxForex Premium Analytics Portal, Fundamental Insight

The Magnificent Seven refers to a distinguished group of megacap companies collectively valued at approximately $13 trillion. These companies constitute around one-quarter of the S&P 500 index and represent over one-tenth of all publicly traded stocks by market capitalization.

The members of the Magnificent Seven include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Notably, Berkshire Hathaway holds a stake in only one of these elite companies. Warren Buffett's leadership led Berkshire to initiate its investment in Apple during the first quarter of 2016, gradually establishing it as the company's largest holding. However, Berkshire divested about 10 million shares of Apple in the fourth quarter of the previous year, with analysts speculating on the possibility of further selling in 2024.

Despite Berkshire's recent reduction in its Apple holdings, Warren Buffett's sentiment towards the tech giant remains positive. He previously hailed Apple as a "better business" compared to any other company within Berkshire's portfolio. This sentiment likely persists, given Berkshire's substantial 43% allocation to Apple within its $372 billion stock portfolio as of the fourth quarter's conclusion, signaling a strong conviction in the investment.

However, Berkshire's decision to sell shares may stem from concerns raised by analysts like Jordan Klein at Mizuho. Issues such as sluggish iPhone sales in China and the introduction of the Digital Markets Act (DMA) in Europe have cast shadows of uncertainty over Apple's future revenue streams. The DMA mandates digital platform operators to accommodate third-party app stores and alternative payment options, potentially impacting Apple's revenue generation.

Investors eagerly await Berkshire's first-quarter trading activities, scheduled for disclosure no later than May 15th through a Form 13F filed with the SEC. Until then, investors must contemplate whether Apple remains a compelling investment opportunity at its current valuation amidst the prevailing market conditions.

Apple boasts a significant advantage in brand authority, a testament to its engineering excellence. By integrating captivating hardware with exclusive software, Apple crafts a distinctive user experience highly prized by consumers. This allure amplifies with the inclusion of more Apple devices, endowing the company with considerable pricing power. Notably, last year, the average iPhone commanded three times the price of the average Android smartphone, according to eMarketer.

This brand authority has facilitated Apple's dominance across various consumer electronics sectors. Leading global smartphone shipments last year, Apple also claimed top positions in tablet and smartwatch shipments, alongside a notable fourth place in personal computer shipments. Recognizing the intermittent nature of hardware purchases, Apple strategically augmented its offerings with a suite of complementary services, effectively capitalizing on its expansive user base, which now exceeds 2.2 billion devices.

However, Apple faced a setback in the first quarter of fiscal 2024, ending Dec. 31, 2023, reporting tepid financial results. While revenue inched up 2% to $119.5 billion, buoyed by robust services performance, declining sales in the iPad and Wearables categories tempered growth. The services segment witnessed notable expansion, propelled by robust advertising, streaming video, and cloud storage revenues. Additionally, bolstered by share buybacks and the ascendance of high-margin services, gross margin surged by 290 basis points, with GAAP earnings spiking 16% to $2.18 per diluted share.

Despite these gains, a concerning trend emerged in China, where sales plummeted by 13% in the December quarter, with iPhone sales slipping further by 24% in the subsequent six weeks of 2024. This contrasts sharply with Huawei's remarkable 64% surge in sales, posing a formidable challenge in the region. CEO Tim Cook remains optimistic about China's long-term prospects but acknowledges the need for vigilance, given its significant contribution, constituting about 17% of Apple's revenue.

Looking ahead, Grand View Research anticipates a 6% annual growth rate in the consumer electronics market through 2030. Moreover, mobile application sales, mobile wallet revenue, and digital ad spending are forecasted to experience substantial growth rates of 14%, 28%, and 15% annually, respectively, during the same period. These markets present pivotal opportunities for Apple, with the App Store alone contributing about one-third of its services revenue.

Despite Wall Street's bullish outlook, forecasting a 5.8% annual sales growth and 8.3% annual earnings per share growth over the next five years, concerns linger regarding Apple's current valuation, standing at 27.4 times earnings. Moreover, challenges such as dwindling iPhone sales in China and potential regulatory impacts on App Store sales in Europe inject further uncertainty. Given these considerations, prudent investors may opt to exercise caution with Apple's stock, with a potential inclination towards reducing exposure if already invested.

As long as the price is below 178.00, follow the recommendations below:

• Time frame: D1
• Recommendation: short position
• Entry point: 169.21
• Take Profit 1: 160.00
• Take Profit 2: 153.00

Alternative scenario:

If the level of 178.00 is broken-out, follow the recommendations below:

• Time frame: D1
• Recommendation: long position
• Entry point: 178.00
• Take Profit 1: 185.00
• Take Profit 2: 190.00