Worst reaction to an earnings report in 13 years: Apple risks losing $460 billion in market value in a single day

Shares of electronics maker Apple plummeted 10% during Friday’s trading after the company announced that it would face a component shortage in the current quarter. If the decline continues through the close of trading, it could mark the worst investor reaction to earnings since January 24, 2013, when the stock lost 12.4%, according to MarketWatch. The stock is also on track for its biggest single-day drop since March 16, 2020, when it fell 12.9%. The sell-off could wipe out $460 billion in the company’s market capitalization.

Although Apple posted strong sales growth for Macs and iPhones in the last quarter, it is feeling the impact of high memory prices—and these challenges may persist, the iPhone maker warned. On Thursday, the company acknowledged that cost pressures and supply chain issues are expected to affect profitability. Apple forecasts a gross margin of 47–48% for the current quarter. This implies a contraction from the approximately 51% recorded in the previous reporting period, according to MarketWatch. Apple’s revenue forecast for the current quarter calls for growth of 9–11%. The FactSet consensus estimate was 12%.

“We’re currently seeing very significant constraints, and the flexibility of the supply chain to address them is limited,” said Apple CEO Tim Cook during an earnings call. According to him, the main problem lies with processors, not memory, Bloomberg reports. Cook claims that iPhone and Mac sales are performing “significantly better” than expected, but Apple made errors in forecasting demand when purchasing chips, which led to these constraints.

— Evercore ISI analyst Amit Daryanani wrote in a note to clients that he and his team “understand why investors will find it difficult to accept” the company’s margin trajectory in the second half of the year, according to MarketWatch. At the same time, he believes Apple’s forecast may be conservative, as the company has several ways to partially alleviate pressure on profitability. Among them is raising iPhone prices when the new lineup launches this fall. This could lead to only a “minimal decline in demand” thanks to a new leasing program designed to make the devices more affordable, even if list prices rise.

— “We are concerned about the mounting pressure from rising memory costs, but we believe Apple’s position is unbeatable,” Bernstein analyst Mark Newman wrote in a note to clients.

— “It’s worth noting that Apple is, in part, a victim of its own success: a significant portion of the supply constraints stem from the company having underestimated demand, and strong sales of the iPhone and especially the Mac have forced it to commit to production capacity using cutting-edge manufacturing processes well in advance,” — wrote D.A. Davidson analyst Gil Luria on Friday.

Overall, 33 out of 51 analysts who cover Apple stock recommend buying it, according to MarketWatch. Fourteen recommend holding it, and four recommend selling it. The Wall Street consensus price is nearly $327, which is 2% higher than the closing price on Thursday, July 30.

This article was AI-translated and verified by a human editor