Rising interest rates, inflation, and currency fluctuations have slammed tech stocks this year. And while Apple (AAPL) is certainly feeling the pain — shares are off 20% year to date — it’s fared better than its peers, which are down as much as 30%, and in Meta’s (META) case, 60%.
But according to BofA Global Research’s Wamsi Mohan, things could get uglier for Apple in the coming months as consumers pull back on spending on pricey gadgets.
“The argument is being made that the high-end consumer is resilient, and hence Apple should also be commensurately resilient,” Mohan told Yahoo Finance Live. “The issue, really, that we see is that consumer spend is weakening, even within Apple’s own install base.”
Despite the fact that the broader economy is flailing, Apple posted impressive revenue numbers during Q3, beating analysts’ expectations and delivering record revenue for the quarter on the strength of its iPhone revenue in July.
In September, Apple released its iPhone 14 lineup, which has a higher starting price, $799, than the iPhone 13 lineup, which started at $699 iPhone thanks to the now-discontinued iPhone mini.
Apple is also hoping to get more consumers to make the jump to its pricier Pro series phones this time around. The company outfitted the iPhone 14 Pro and Pro Max with newer processors, three cameras, and the new multitasking-capable Dynamic Island, while giving the standard iPhone 14 and 14 Plus the same processor as last year’s iPhone 13, two cameras, and no Dynamic Island.
The upgrades are designed to get people to buy the more expensive phone, driving up the iPhone’s average selling price, helping Apple drive revenue growth. But Mohan says there are already signs of some weakness among Apple’s core consumers.
“The App Store grew about 4 or 5 points in Q2. [It’s] going to be down 2% in Q3, and this is the install base of users catering specifically to Apple,” Mohan said. “So what’s very clear is that this is not just sort of some low-end consumer problem. We have a broader spending deceleration that’s happening across sort of the broader swath of the ecosystem.”
Apple’s sales typically peak in Q4 as consumers buy up everything from iPhones and Apple Watches to iPads and Macs in time for the holidays. And that’s not going to change this year. After that, though, is when Mohan says the company could start feeling the squeeze.
“As you look into March and June, we think the real problems start to emerge then in terms of just the weakening and the rate and pace of change in consumer appetite for electronics,” Mohan explained. “We already see high-frequency data that’s showing that these elements are slowing.”
One area Apple could experience particular slowdown is in its Mac and iPad businesses. Like other consumer tech companies, Apple saw Mac and iPad sales explode during the pandemic as everyone from workers to students sought out devices to stay connected during months of office and school shutdowns.
Now that those consumers have their devices, though, they won’t need to upgrade for quite some time, which could make for some tough revenue comparisons in the coming quarters.
Despite broader economic volatility, shares of Apple have outperformed other Big Tech stocks in 2022. While Apple has fallen some 20% year-to-date, it’s still doing better than the S&P 500, which is off 22%.
Microsoft, meanwhile, is down 28%, while Amazon and Alphabet are off 30% and 31%, respectively. Meta? That’s down 58% thanks to a combination of slowing ad sales and Apple’s privacy changes, which have ravaged the stock.
Apple reports its Q4 earnings after the bell on Oct. 27.