Why Apple Stock Dropped Today
Key Points
Bank of America analyst Wamsi Mohan reiterated his buy rating and $380 price target on Apple today.
He did warn about falling gross margins, however.
That was enough to spook investors.
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Apple (NASDAQ: AAPL) stock fell 2.3% through 2:45 p.m. ET Monday afternoon -- but not for lack of trying.
In a note intended to boost the stock, Bank of America analyst Wamsi Mohan reiterated his "buy" rating and $380 price target. With Apple stock trading below $327, that should have sounded encouraging -- but investors sold it instead of buying.
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Why?
Image source: The Motley Fool.
Accentuate the negative, eliminate the positive
Consider what Mohan had to say about Apple. Long-term, he likes Apple stock just fine and predicts that, by December 2026, new iPhone launches at higher prices will start boosting profit margins and improving company profits. Unfortunately for Apple, investors are more focused on the short term today -- and Mohan had some cautionary words on that front.
Heading into the Q3 2026 report due out July 30, the analyst warns that rising component costs will subtract 190 basis points from quarterly gross margin, which will average 36.8%. Next quarter's numbers could look even worse, with Q4 gross margins falling further to 34.1%.
Granted, Mohan reassures that these declines are "transitory" and predicts margins will rebound above 38% in fiscal Q1 2027. Granted, he also expects Apple to beat analyst forecasts in each of Q3 and Q4 despite weak margins.
It doesn't matter. Investors heard only the part about declining gross margins for two straight quarters -- and sold Apple stock today.
What's next for Apple stock?
But can you blame them? Priced at 40 times earnings but pegged for only a 13% long-term growth rate, Apple stock doesn't look especially cheap today. Weakening margins could make it look even more expensive as profits suffer, too. On top of all that, longtime CEO Tim Cook is headed for the exits.
Maybe selling Apple ahead of earnings isn't the worst idea after all.
Should you buy stock in Apple right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
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