Plans to Short Apple Stock Ahead of iPhone 15 Launch Next Week, Says Hedge Fund Manager

According to Daniel Niles, founder and portfolio manager at Satori Fund, the scheduled "Wonderlust" iPhone 15 launch event by Apple, Inc. on September 12 may not result in a typical rally in the run-up to the event as things could be different this time around.

Niles said he is starting to sell his Apple position, based on these four reasons. Below is a press release summarization.

1) China's Restrictions on iPhone Use

According to recent reports, China has advised certain central government officials at specific regulators to refrain from using foreign-branded devices, including Apple's iPhone, for work purposes. It has also been suggested that this ban may be extended to other government-backed agencies and state-owned companies.

China has previously expressed concerns over potential network cybersecurity issues and national security, which led to certain restrictions on American memory chip maker Micron Technology at some infrastructure providers earlier this year. Some experts suggest that the recent expansion of restrictions for iPhone use in certain government-backed agencies and state-owned companies may be for similar reasons.

This action may also be seen as a retaliatory response to the U.S. imposing several bans on semiconductor technology.

2) The Threat of Huawei's New Phone

In recent years, Apple has become the leading player in China's high-end phone market, largely due to harsh U.S. sanctions that restricted chip supplies. Additionally, Huawei had to abandon its plans to manufacture 5G phones, leaving a gap in the market for Apple to fill.

Huawei is making a comeback by launching a new phone in China with 5G-like speeds and features. The first batch of the phone, called Mate 60 Pro, was priced at $960 for presale and sold out within just a few hours. This enthusiastic response suggests that Huawei may win back customers who had switched to Apple, which is set to launch its latest iPhone next week.

Tests by Chinese consumers and testing agencies reveal that Huawei's latest phone, not marketed as a 5G device, can achieve download speeds of 500-800 megabits per second. This far exceeds the speed limit of 4G networks.

According to Martin Yang, an analyst at investment firm Oppenheimer, Apple may face a loss of 10 million iPhone shipments by 2024 due to the new Huawei phone. This projected figure would account for roughly 4.5% of Apple's total iPhone shipments, which amounted to 224.7 million in 2022, according to Counterpoint Research.

3) Resuming Federal Student Loan Payments

Millions of Americans with federal student loans will soon receive their first bill in three years.

Congress has passed a law preventing further extensions of the payment pause for federal student loans, following an agreement reached between Republicans and Democrats to raise the nation's debt ceiling. This agreement was signed into law by President Joe Biden in early June, but came at the cost of significant cuts to federal spending demanded by Republicans.

In addition, a Consumer Financial Protection Bureau report indicates that one out of five borrowers may struggle to make scheduled payments due to an increase in other debt obligations by 24% during the three-year payment pause period, which has greatly impacted their personal consumption.

4) Unattractive Valuation and No Major AI Play

Nile noted that Apple is trading at a P/E multiple of 29 times the estimated earnings for 2023 for a 1-2% revenue growth in calendar years 2022/2023. This is high relative to the S&P 500's P/E multiple of 21 times.

Apple's AI head John Giannandrea and software engineering chief Craig Federighi are leading the company's AI efforts, but there are reportedly disagreements over product development, which is a common challenge for Apple's emerging technologies. While other tech giants have already released generative AI, Apple may be planning to make a "significant" announcement in 2024, but they do not have any concrete plans as of yet.

However, there are voices different from Daniel Niles.

Evercore ISI analysts suggest that it would be challenging to take significant action against Apple without affecting Chinese jobs, as China represents a significant portion of Apple's revenue and employs over five million individuals in the country.

Additionally, limited measures by central governments may not necessarily impact consumer behavior, as seen with the TikTok ban on government devices in the U.S. last year, which did not significantly affect the app's popularity among Americans.

Analysts at CFRA are optimistic.“We conservatively project iPhone revenue to grow 5% in the iPhone 15 cycle, largely on easier comparisons from the year ago December-quarter Covid supply constraints and lower overall U.S. units sold during the iPhone 14 cycle,”CFRA's Angelo Zino wrote in a research note.