U - Apple: Ripe For Disappointment After WWDC

2023-06-05 15:46:53 ET

Summary

• Apple unveiled new Mac products and its mixed reality headset, Vision Pro, at WWDC, but shares pulled back from all-time highs.
• The stock may be overextended, and the Vision Pro's high price and 2024 launch date disappointed investors.
• Apple shares typically underperform during WWDC week, and the stock may face near-term technical pressure.

On Monday, technology giant Apple ( AAPL ) kicked off its annual Worldwide Developers Conference ("WWDC"). This year's event was likely the most anticipated gathering in several years, as everyone was waiting to see the company unveil its mixed reality headset. Apple delivered its first major new piece of hardware in years, while showing off some other new products, but shares of the stock did not react well to the news. Today, I'd like to examine why that might have happened.

For those who are unfamiliar with WWDC, it's not traditionally a major product event. It's mostly a chance for management to show off new software and the brains that will enable the next generation of Apple devices. While there can be some new devices shown off from time to time, the company usually holds its flagship product launch event in September. That's when we see the new set of iPhones, as well as some other items for the upcoming holiday season.

This year's event did feature a couple of new items , primarily for the Mac line. Apple unveiled a 15-inch MacBook Air, the larger screen version of the lightweight laptop that was unveiled at WWDC 2022. The company also introduced the Mac Studio and Mac Pro, both with the powerful M2 Ultra chips. The key part is that Apple has fully transitioned to its own silicon here, moving away from Intel ( INTC ), which saw its shares tumble on the news.

Apple did unveil its mixed reality headset on Monday, Vision Pro, after years of speculation regarding the device. Management spent a bunch of time early on mentioning business uses. That's because the device is priced at $3,499, so it's not likely to be a mass market consumer product. Social media giant Meta Platforms ( META ) has a much more reasonably-priced device that has more traditional consumer appeal. Apple is partnering with Disney ( DIS ) for content, with Disney CEO Bob Iger appearing on stage to tout what he called "a revolutionary platform." Disney+ programming will be available on the device at launch. Apple also announced a partnership with Unity Software ( U ), sending shares of that company nicely higher.

Apple shares have been on a nice run so far this year. The stock actually hit a new all-time high during Monday's trading, just under $185, before pulling back. At that point, as the chart below shows, the stock was more than $16 above its 50-day moving average. This is usually where shares look a bit extended, and the rally can fizzle out.

At the same time, Apple may be fully valued at current levels according to the street. Going into Monday's event, the average price target among analysts was $180.48, which is pretty much exactly where Apple shares traded when I started writing this particular paragraph. This is another area where the stock has stalled out, only getting above this average valuation a handful of times in the last three years.

One of the reasons why the headset was so important for Apple was that expectations were calling for an acceleration in revenue growth later this year. Analysts were projecting Apple's top line would grow by more than 7.5% in the all-important December quarter (Apple's fiscal Q1). On one hand, last year's period was meaningfully supply constrained due to China coronavirus shutdowns. That means that the comparison bar for 2023 is lower than it might normally be. On the other hand, however, the 2022 holiday period was 14 weeks long due to how the calendar fell, so Apple will have one less sales week in this year's period. Unfortunately, the new headset won't be launched until early 2024, so that won't help sales in any calendar 2023 periods. That news sent Apple shares down more than 1% in late afternoon trading.

It would not surprise me if Apple shares see some pressure in the near term. Beyond the technicals that show the stock may be overextended, WWDC week is generally one of the worst for Apple shares. This is usually because going into the annual event, expectations are tremendously high, so not everyone is satisfied when you have so many rumors coming out beforehand. As the table below shows, the stock usually trades down during the week of the event, with a minus 2.45% average performance over the past 22 years. In the 17 years here where Apple has been down this one particular week, the average decline is nearly 4%. In 2014, the asterisk week, Apple shares were set for a 7 for 1 stock split the following week, which may explain why that week was an outlier.

In the end, Apple shares pulled back from their all-time highs on Monday during the WWDC keynote. Apple did unveil some nice new Macs, and the really expensive mixed reality headset was finally shown off. The stock tumbled a little when the device's availability was revealed to come in early 2024, meaning no revenue help in this year's holiday period. WWDC week usually isn't a good one for Apple shares to begin with, and the stock was certainly overextended in the near term. This turned out to be another "buy the rumor, sell the news" event. I wouldn't rush in to buy the stock just yet, especially with another potential Fed hike coming soon, but I'll take another look at shares should they get closer to the 50-day moving average in the coming weeks.

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