By Dan Gallagher
Few companies have capitalized on a globalized economy better than Apple. So the end of the globalized economy has painful implications for the iPhone maker.
That helps explain why Apple's stock price has fared the worst among megacap techs since President Trump's announcement last week of shockingly high tariffs. Those goods include nearly every hardware product of the $300 billion worth that Apple sells every year.
The result: Apple has shed 21**%** percent of its market value since Trump's announcement, which includes a bump Wednesday. The other five tech companies valued over $1 trillion have averaged a drop of around 9**%** over that time. The slide even cost Apple its crown as the world's most valuable company by Tuesday's closing bell.
Investors have done the simple but brutal math: Tariffs would raise Apple's cost of sales, which in turn would lower the company's gross profit margins. Those margins are closely watched by investors and have been rising steadily over the last five years, hitting an all-time high of 46.5% in 2024 - eight points ahead of arch-rival Samsung's for the same period, according to data from S&P Global Market Intelligence.
Investors have reacted badly in past periods when Apple's gross margins have turned down. Apple's stock price collapsed by 29% during its 2013 fiscal year when the company's annual gross margins fell more than six points due mostly to the expensive new design of that year's iPhones.
A smaller gross margin slip that began in mid-2015 took the stock down 16% by the end of that year. In both instances, Apple's forward price/earnings ratio fell more than 30% before rebounding, according to FactSet data.
Apple's current P/E ratio is now down 19% since Trump's tariff announcement. The company is reportedly planning to move more production to India but has yet to announce what actions it may take, which has Wall Street still expecting gross margin gains this year and next, according to FactSet projections.
But with some estimates showing the iPhone's build costs going up more than 50% with the new tariffs, Apple may be limited in how much of that increase it can pass through to customers. Eating some of that cost, though, is certain to give Apple's investors even more indigestion.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here.
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(END) Dow Jones Newswires
April 09, 2025 09:59 ET (13:59 GMT)
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