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New products, diversifying revenue streams will be key to its stock, analysts say

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Slowing growth. Rising competition. Widening scrutiny.

Apple is falling flat in China and with investors, as the shine comes off of the once darling stock. Shares of the tech giant have declined 8.5% this year, wiping more than $300 billion from its market capitalization, and underperforming the S&P 500 and Nasdaq 100.

However, not all is lost. The stock correction is making Apple’s valuation more attractive, analysts say, and it’s not out of the question that the company wows the world again with new offerings.

Currently, Apple’s stock has fallen 14% from its December peak of $198.11, compared to the S&P 500’s 10% gain and the Nasdaq 100’s nearly 9% climb during the same time.

A number of factors have unnerved investors, including sluggish iPhone demand, intensifying Chinese competition, and heightened regulatory scrutiny, Needham analyst Laura Martin told Yahoo Finance Live.

The growing list of obstacles has prompted more than a few of Martin’s peers to become more bearish on the stock in the short-term. Goldman Sachs removed Apple from its Conviction List last month, while Barclays, Piper Sandler, and Redburn Atlantic were among firms that have downgraded the stock in 2024.

Earlier this week, Loop Capital analyst Ananda Baruah cut his price target on Apple to $170 from $185, and lowered his earnings estimates, writing in a client note that lackluster demand, “softer fundamentals,” and competition from Huawei and Xiaomi are having a “material impact.”

“iPhone unit shipments are simply too soft,” Baruah wrote. “We currently believe that both Street iPhone units and revenue [estimates] could be 20% too high, and that Wall Street’s overall revenue and EPS [estimates] could be 10% too high.”

Baruah expects Apple’s annual revenue and earnings to decline in 2024 — which has not happened since 2016.

SHANGHAI, CHINA - MARCH 23, 2024 - Customers shop at Apple's flagship store, the world's second largest and Asia's largest, in Shanghai, China, March 23, 2024. (Photo credit should read CFOTO/Future Publishing via Getty Images)

SHANGHAI, CHINA – MARCH 23, 2024 – Customers shop at Apple’s flagship store, the world’s second largest and Asia’s largest, in Shanghai, China, March 23, 2024. (Photo credit: CFOTO/Future Publishing via Getty Images) (Future Publishing via Getty Images)

And Apple’s woes in China aren’t going away. iPhone sales in the country dropped 24% during the first six weeks of the year, with Apple’s market share falling below 16%, according to a Counterpoint Research report. Chinese smartphone maker Vivo holds the largest domestic market share with 17.6%, while Huawei and Honor Device accounted for 16.5% and 16.3%, respectively.

TECHnalysis Research’s Bob O’Donnell told Yahoo Finance Live that the road ahead for Apple will be challenging, as the region contributed nearly one-fifth of the tech giant’s overall revenue in its most recent quarter.

“I think the next couple of quarters is going to be tough,” O’Donnell said. “I’m hoping that Apple will pull a rabbit out of its hat. It’s done so in the past, and I’m not convinced it can’t do that now.”

Despite waning excitement on Wall Street, now may be the time to bet on Apple. The recent selloff has put its shares at a discount, Piper Sandler chief market technician Craig Johnson told Yahoo Finance Live, giving it a more attractive risk-reward set up.

“Apple looks like a pretty attractive place for people to park their money at this point in time, because it’s got a great balance sheet, a highly repeatable business model, good margins, and they’re buying back quite a bit of stock,” Johnson explained.

Beyond its solid balance sheet, several analysts remain confident in the company’s ability to regain momentum. The Vision Pro headset and anticipated AI initiatives are largely viewed as future revenue growth drivers, along with additional sources of revenue, including a potential advertising push.

“Maybe demand is slower in China, but it has really wealthy demographics already using their ecosystem, so they need to add advertising to drive revenue growth,” Martin said. “Apple needs to figure out a way to add more services and software so it can get more subscription revenue and up its revenue per device.”

Martin is among a shortened list of analysts who have maintained a buy rating on Apple. At the start of the second quarter, just over half the analysts covering Apple rated the stock a buy, according to Bloomberg data. That makes Apple the second least-favored Magnificent 7 stock, behind Tesla.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email seanasmith@yahooinc.com.

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