Kevin Simpson Apple Inc AAPL-Q BUY ON WEAKNESS May 23, 2025

If the tariff situation simmers down (and it should come the summer), the Mag 7 name that will be the big beneficiary will be AAPL.

They report Thursday. Some will say these will be Apple's last good numbers before tariffs, but he isn't concerned. He is confident they can work their way out of any problem involving China, but it will take time and money. He expects the CEO to announce plan that involves India.

The tariff focus on China and Apple already shifting their supply chain out of China (to India) is the most interesting in this week's tech earnings.

The consumer-related companies are taking it on the chin. In transition -- can they produce in the US or not? From  what he understands, moving manufacturing to the States would increase the cost of products dramatically. Getting crushed in China from competition. Tougher to change course.

AMZN's retail side is taking a bit of a hit. Cloud business is great. Imports all its goods, and can more easily switch to importing from countries other than China. He's not buying much of anything now, but if he were, he'd probably pick this one.

Has incredible gross margins. They just reported a fine quarter, but tariffs in China didn't help. The street perceives that as the last great quarter, so shares fell. Apple is trying to move production from China to India but who know how long it will take. Services revenue disappointed and a monopoly lawsuit doesn't help.

The company is treading water, hasn't done much in the recent versions of the Apple phone. However, their services division is doing well; services are stickier with higher margins, and make up 28% of Apple's total revenues. The phone is the core, though, and will be raising prices. People are willing to pay a lot for these phones. Last fall, they launched Apple Intelligence, their AI, but hasn't had an impacted, but that's not unusual for Apple--their launches take time to catch on. AI will be an opportunity for Apple down the road. Apple is a core holding of his.

They do gross margins very well, but revenues are in the single digits at best while iPhone sales are down YOY. And it trades at 28x. There are better Mag 7 stocks.

This is thuggish behaviour with Trump telling Apple, "Pay up." And now the negotiation comes. Tim Cook will have to pay it, whether through lower gross margins for example. Remember that Trump needs to pay for the tax cuts he just passed. The world knows now that the U.S. won't cut spending, and Trump needs to find money--squeezing everybody he can squeeze. Expectations needs to decline for Apple. In recent years, Apple's growth has slowed and their AI hasn't come out as hoped (and they may not get AI right), but as the US market goes, so will Apple. That said, the difference is Apple's services which boasts wide margins, and Apple has a history of catching up the latest innovations. When money flows into markets, it flows into Apple.

Those holding it in a taxable account don't want to sell Apple now, so will hold. And no, Apple will not trade in line with the S&P (it's been underperforming the market).