Apple Stock Analysis: Sell This Still-Bad AAPL Into Strength

Since the start of May, investors have warmed back up to shares in iPhone maker and overall tech behemoth Apple (NASDAQ:AAPL). Several factors have played a role in sending Apple stock from around $170 per share, back on its way toward its 52-week high of just under $200 per share.

We aren’t concluding that the AAPL slump has ended. Substantive catalysts are pushing the “Magnificent Seven” component towards higher prices, but the recent bullish sentiment may not last long. A reversal may be imminent, considering various factors. Existing investors should not hold on to their investments and take profit instead.

2 Reasons Why Apple Stock has Been on a Tear

If you’ve been following AAPL, you likely know why the stock has performed strongly lately. However, if you haven’t been paying close attention to the situation, here’s an overview of what has played out over the past few weeks.

First, on May 2, Apple released its results for the preceding fiscal quarter ending March 30, 2024. Although revenue declined on a year-over-year basis, and earnings per share were by-and-large flat compared to the prior year’s quarter, revenue of $90.8 billion and EPS of $1.53 came in ahead of analyst consensus.

That said, it wasn’t just the results themselves that resulted in a moderate post-earnings rally for Apple stock.

Investors were also happy to hear Apple’s plans to buy back $110 billion worth of shares. Not too long after the earnings release resulted in a spike for shares, a second bullish development emerged.

On May 10, major financial publications like Bloomberg reported that Apple was closing on a deal to partner with OpenAI, with plans to integrate the ChatGPT developer’s generative artificial intelligence technology into its upcoming iPhone operating system, iOS 18.

Since the initial headlines, further dissemination of this news has kept the stock trending higher.

The Run-Up Could Carry On, but Not for Long

Apple stock has surged over a relatively short time, but admittedly, this rally may have some additional runway. Less than a month from now, the company will hold its annual Worldwide Developers Conference.

At the conference, it is expected that Apple and OpenAI will officially unveil their partnership. This event could spark an additional wave of excitement about this collaboration, and what it may mean to drive a resurgence in demand for the iPhone.

Recently, the post-pandemic slump in iPhone sales has worsened, especially in China, due to increased competition.

Hence, there may be a few bites left in the AAPL rally. However, be careful. It’s very possible that investors “sell on the news” right after WWDC wraps up on June 14. After the conference, and the OpenAI reveal, attention could shift back to present growth challenges.

For instance, after an initial wave of excitement about AI integration, the market could begin doubting that this will serve as a silver bullet for the company’s growth woes. Namely, given the latest U.S. crackdown on AI software exports to China, Apple may not even be able to sell a ChatGPT-powered iPhone there.

The Verdict: Sell Ahead of a Possible Pullback

Following the latest AAPL surge, shares are now back to a more aggressive valuation, nearing 30 times forward earnings. This may represent a discount to some other “Mag 7″ stocks, but this valuation may only be sustainable, if Apple quickly gets back into high growth mode.

Given the uncertainty surrounding an AI-powered resurgence in popularity for the iPhone, plus the prospect of further weak results over the next quarter or two, it’s very possible that another wave of bearish hits sometime in the months ahead.

With this in mind, don’t hope shares avoid a pullback. Err on the side of caution instead. If you currently own Apple stock, take the money and run. Otherwise, wait for further developments before buying.

Apple stock earns a D rating in Portfolio Grader.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.