Investors in the largest company in America are paying increasing attention to China, where Apple Inc. is working hard to attract a vital customer segment while also navigating tariff-related challenges. The iPhone manufacturer views China as both a key market and an important manufacturing center. Enhancing its declining sales in the region through artificial intelligence features in its products could serve as a significant driver for revitalizing its investment potential. Conversely, the threat of tariffs and a potential trade war pose risks that are difficult to quantify.
“Apple’s exposure to China presents a risk compared to much of the broader market,” said Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management. He emphasized that the possibility of Apple facing tariffs or investigations should be on investors’ radars. “However, if AI-enabled iPhones succeed, it could lead to consistent growth over the coming years,” he added.
In 2025, Apple’s stock has decreased by 5.4%, making it the poorest performer among the Magnificent 7, aside from Tesla Inc. Investor sentiment has deteriorated recently due to sluggish demand for the iPhone 16—the first model to feature AI technology—and the associated tariff risks. Although the company’s latest financial results were mixed, with disappointing sales in China and for the iPhone, the outlook was generally seen as positive. Boosting sales in China would be significant, as the region accounted for roughly 17% of Apple’s revenue in fiscal 2024, according to Bloomberg data, compared to about 26% from Europe and over 40% from the Americas. Recent developments suggest potential for a turnaround in China, especially after Apple’s stock surged on a generally negative market day, following news that it had begun collaborating with Alibaba Group Holding Ltd. to integrate AI features into its products in China. The chairman of Alibaba confirmed this partnership on Thursday.
Morgan Stanley analyst Erik Woodring described this collaboration as a critical factor for enhancing Apple’s competitive position in China. He noted that a survey conducted by the firm revealed that Chinese iPhone users show greater interest in AI compared to their counterparts in the US and Europe, with over 50% indicating that the staggered rollout of Apple Intelligence influenced their decision not to upgrade their iPhones this cycle. This potential growth comes after a period of sluggish performance relative to other major tech companies. Apple’s revenue has declined in five of the last nine quarters, and analysts project a growth of only 4.9% for fiscal 2025, which is less than half of the 11.6% expected for the tech sector overall, according to Bloomberg Intelligence.
Geopolitical tensions also play a significant role. The Trump administration implemented 10% tariffs on China, and in response, China imposed its own tariffs. Additionally, China is contemplating a possible investigation into Apple’s policies and App Store fees. Analysts have generally downplayed the risks associated with tariffs, although they acknowledge uncertainties regarding their duration and the possibility of Apple receiving an exemption. Evercore ISI estimates the impact on earnings per share to be “in the range of 3-4%,” which it considers “relatively minimal.” Bank of America has also stated that the effect on earnings should be “limited” and “manageable.” However, Apple’s valuation suggests there is little margin for error. The company’s shares are trading at 31 times projected earnings, approximately 50% higher than their average over the last decade. The stock also commands a premium compared to both the broader market and the overall tech sector. After several downgrades this year, just over 60% of analysts recommend purchasing the stock, a figure that falls short compared to other major companies like Microsoft Corp., Nvidia Corp., Amazon.com Inc., Alphabet Inc., and Meta Platforms Inc.
Despite this, investors still regard Apple as a relatively defensive investment due to its robust cash flow, extensive buyback program, high-margin services division, and minimal spending on AI initiatives. “Apple may seem somewhat problematic in the short term due to its valuation and lack of growth, but it remains an exceptional cash-generating company,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services. “That’s why it continues to be a favorite among both institutional and retail investors.”
