How Does Apple Stay Ahead?

Apple shares are trading down 20% so far this year, but in the tech space, that is significant outperformance. What's the secret?
----------------

Setting records

The tech space has been facing dual challenges: Rising interest rates have raised the cost of investing in stocks with high valuations. And fears of recession have kept investors on the sidelines. This is particularly relevant for platform tech stocks, such as Meta and Google, which rely chiefly on advertising for their revenue. Meta's move to cut 11K jobs is just one of the many tech companies that have had to cut costs.

Apple's market cap is worth more than Meta, Alphabet and Amazon combined. But there is one big difference between those companies: Apple sells a physical product (which allows access to those other platforms), and has a more industrial base. Apple is its own ecosystem of devices, software and accessories. This allows the company to lean on different aspects of its business to optimise growth and not rely on one primary source of revenue.

Being truly global

Most tech companies bill themselves as being global. And with the internet reaching all corners of the Earth, that is technically true for any web-based firm. But many tech companies are highly dependent on specific geographies. Meta, for example, receives 44% of its revenue from North America; well over two-thirds come from just 29 countries. Amazon is even more concentrated, with 66% of its gross sales from the US alone. In general, tech companies rely heavily on the availability of discretionary spending among Americans, which inflation has significantly impacted.

The US is still Apple's largest market, but its footprint is more diverse, with China being its second-largest consumer. This helped the company increase sales while the rest of the world was bogged down by supply chain problems. Although Apple is not immune to global trends, it is doing something that investors like more than other tech firms.

APPLE in broadening wedge

Apple appears to be in a broadening wedge pattern originating on January 3rd 2022. The price has formed two lower-lows and two lower-highs so far, hinting at a final downward leg to complete the third lower-low. Typically, the conclusion of the bearish derivative offers an upward breakout, extending the length of the last downward leg from the breakout point up and towards the previous top at $183 (R3) if $176 (R2) breaks.

A near-term move under the second lower-low of $129 (S2) will increase the chances of reversal despite the lowest-low being expected to be larger than its preceding leg. Its length opens the door to $122 (S3), but the reversal often occurs at the lower diagonal trendline.

However, judging by a visual time-price intersection, it would be far below the $100 level, making the case unlikely. In the short term, $135 (S1) is firm support, whereas $157 (R1) is a strong resistance.

Key Takeaways

Apple shares are down 20% this year, but the company outperforms its tech peers. Its secret is its diverse product ecosystem, global footprint and that it doesn't rely on one source of revenue. The company is not immune to global trends, but it is doing something investors like more than other tech firms.