What Lies Ahead for Apple ETFs After iPhone Use Ban?

The tech giant Apple Inc. AAPL shed nearly $200 billion in market value in just two days amid the reports of China planning to expand a ban on the use of iPhones to government-backed agencies and state companies. Notably, China is Apple’s third-largest market, accounting for 18% of the company’s total revenues last year.

The Wall Street Journal disclosed on Wednesday that Beijing had issued a directive instructing officials within central government agencies not to bring iPhones into their workplaces or use them for professional purposes. Bloomberg News later reported that this prohibition could extend to employees of state-owned enterprises and government-affiliated institutions.

Bernstein analyst believes an iPhone ban on all Chinese government employees could cut Apple’s phone sales in China by as much as 5%. However, most analysts are also calling the reaction overblown, considering China is a much larger market beyond government agencies. Wedbush Securities thinks the ban would affect less than 5,00,000 iPhones of the roughly 45 million he expects to be sold in the country over the next 12 months.

The rumored restriction on iPhones comes closely after Huawei, a Chinese tech giant, launched its new premium smartphone. Bank of America analysts found the timing of these events to be noteworthy.

Growth Prospects

One of the primary motivations to invest in Apple is its dominant presence in the consumer tech landscape, positioning it favorably for expansion into rapidly growing sectors like artificial intelligence (AI) and virtual/augmented reality (VR/AR). These areas are anticipated to see compound annual growth rates exceeding 30% until 2030.

Historically, Apple has demonstrated an ability to penetrate new markets and swiftly capture significant market share. With the recent launch of its VR/AR headset, the Vision Pro, in June, Apple’s growth potential seems even more promising.

Additionally, the iPhone maker is expanding into new markets. Apple’s Services segment, which includes the App Store, iCloud, Apple Music, Apple TV+ and Apple Arcade, has been a significant growth driver. With a growing global user base, these services are expected to generate massive revenues.

Solid Zacks Estimates

Apple boasts the world’s highest stock market valuation, at nearly $2.8 trillion. It has seen positive earnings estimate revision of a penny for both the current and the next fiscal year over the past 30 days.

Apple currently has an average brokerage recommendation (ABR) of 1.64 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations made by 29 brokerage firms. The current ABR compares to an ABR of 1.64 a month ago based on 29 recommendations. Of the 29 recommendations deriving the current ABR, 18 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 62.07% and 10.34% of all recommendations. A month ago, Strong Buy made up 62.07%, while Buy represented 10.34%.

Based on short-term price targets offered by 27 analysts, the average price target for Apple comes to $205.07. The forecasts range from a low of $140.00 to a high of $240.00.

Currently, Apple carries a Zacks Rank #3 (Hold) and a Growth Score of B, suggesting that the iPhone maker is primed for growth. Apple stock is cheap, trading at a P/E ratio of 30.26 compared with Amazon’s AMZN 60.66 times, Netflix’s NFLX 37.41 times and Microsoft’s MSFT 30.54 times.

Buy Opportunity!

That said, investors should consider the declining prices in Apple to be a better entry point. Several ETFs have the largest allocation to the tech titan. Technology Select Sector SPDR Fund XLK, Vanguard Information Technology ETF VGT, MSCI Information Technology Index ETF FTEC, iShares US Technology ETF IYW and Invesco QQQ QQQ have Apple as the top or second firm with a double-digit allocation and carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Technology Select Sector SPDR Fund (XLK)

Technology Select Sector SPDR Fund targets the broad technology sector and follows the Technology Select Sector Index. It holds about 65 securities in its basket, with Apple making up for a 21.7% share. Technology Select Sector SPDR Fund is the most popular and heavily traded ETF, with AUM of $51.6 billion and an average daily volume of 6 million shares. The fund charges 10 bps in fees per year.

Vanguard Information Technology ETF (VGT)

Vanguard Information Technology ETF manages about $54 billion in its asset base and provides exposure to 323 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, Apple accounts for a 22.7% share. Vanguard Information Technology ETF has an expense ratio of 0.10%, while volume is solid at nearly 537,000 shares.

MSCI Information Technology Index ETF (FTEC)

MSCI Information Technology Index ETF is home to 311 technology stocks with AUM of $7.3 billion. It follows the MSCI USA IMI Information Technology Index. Apple accounts for a 22.3% allocation. MSCI Information Technology Index ETF has an expense ratio of 0.08%, while volume is solid at 228,000 shares a day.

iShares US Technology ETF (IYW)

iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 135 U.S. electronics, computer software and hardware, and informational technology companies. Apple makes up 17.5% of the assets. iShares Dow Jones US Technology ETF has AUM of $11.4 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges 924,000 shares a day.

Invesco QQQ (QQQ)

Invesco QQQ provides exposure to the 101 largest domestic and international non-financial companies listed on the Nasdaq by tracking the Nasdaq 100 Index. Apple accounts for an 11.1% share. Invesco QQQ is one of the largest and most popular ETFs in the large-cap space, with an AUM of $207 billion and an average daily volume of 46 million shares. It charges investors 20 bps in annual fees., Inc. (AMZN): Free Stock Analysis Report

Apple Inc. (AAPL): Free Stock Analysis Report

Microsoft Corporation (MSFT): Free Stock Analysis Report

Netflix, Inc. (NFLX): Free Stock Analysis Report

Invesco QQQ (QQQ): ETF Research Reports

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports

iShares U.S. Technology ETF (IYW): ETF Research Reports

Vanguard Information Technology ETF (VGT): ETF Research Reports

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Zacks Investment Research

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