Why Apple Inc Stock Rally may be Limited
To all of the bulls who have supported Apple Inc. (NASDAQ: AAPL), even after trading at a 52-week low at $89.47 in May 2016, many congratulations to you.
AAPL stock just made a bullish move when its 50-day moving average (MA) went above the 200-day MA, in a golden cross pattern. To put this into perspective, the last time AAPL stock exhibited a golden cross was in 2013, when the shares were hovering at just above $60.00.
Now, before shareholders of Apple stock celebrate this technical move, I hate to spoil their party mood, as I’m not convinced that AAPL stock can continue its ascent.
Let me explain.
I guess my reservation continues to be based on the fact that Apple Inc. is still essentially a maker of great smartphones. Don’t get me wrong; this is an incredible position for Apple Inc. to be in, but there needs to be more than that to get me excited.
Chart courtesy of StockCharts.com
The reality is that much of the current momentum in Apple stock was largely due to news about the exploding “Galaxy Note 7” smartphone made by rival Samsung Electronics Co Ltd. Couple this crippling news for Samsung with relatively strong demand for the “iPhone 7” and you essentially have the reason for AAPL stock breaking higher.
The problem I see is that the problems at Samsung are likely to be resolved. The current bump in AAPL stock will eventually need more reasons to move higher. The premium smartphone market is competitive. Of course, rivals have tried for years to upend Apple Inc. and have failed, but that doesn’t mean it’s over.
Alphabet Inc (NASDAQ:GOOG), for instance, is rapidly moving into the artificial intelligence (AI) realm, and it just launched its own premium smartphone called “Pixel” that is built from the ground up. Early reviews are that the Pixel is a terrific phone that could provide some challenges for the iPhone. Again, we’ll wait for the sales numbers for the Pixel.
Meanwhile across the Pacific Ocean, don’t forget the rapid growth of Chinese rivals such as Xiaomi, which is known as the “Apple of China” and could be the next major phone-maker out of Asia, joining Samsung, LG Electronics, Sony Corp (ADR) (NYSE:SNE), and Huawei Technologies Co., Ltd. The Xiaomi phones have not found their way to the U.S. yet, but I’m pretty sure after the company grows its market share in Asia, you’ll find the phones here.
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AAPL Needs a Game Changer
Apple Inc. must continue to diversify its revenue stream away from its heavy dependence on the iPhone, given the crowded smartphone marketplace.
I will likely only jump on the Apple Inc. bandwagon once I’m convinced the company can produce a game changing product or solution. That could be in the Internet of things (IoT) space or perhaps an Apple car (which I doubt), but more likely the ability to control a vehicle via an Apple system. This makes the most sense to me.
Apple Inc.’s decision to invest $1.0 billion in Chinese ride-sharing service Didi Chuxing could inevitably allow Apple Inc. opportunities in the auto space for IoT.
All you have to do is take a look at several of the other major technology companies like Alphabet and Amazon.com, Inc. (NASDAQ:AMZN) that are introducing disruptive products and solutions, which is where Apple Inc. needs to be.
It doesn’t look like the “Apple Watch” or “Apple Music” will be the saviors, nor the drivers behind Apple stock going forward, but with tens of billions of dollars in cash, Apple Inc. may yet introduce a game changing addition to complement the iPhone.