Apple stock has been one of the rare underperformers among technology companies in 2024, as the sector continues to thrive amid the ongoing artificial intelligence (AI) boom. 

However, on Monday, a renowned Wall Street research firm hinted that Apple’s woes may be coming to an end, urging investors to “buy the fear” in Apple shares (NASDAQ:).

Apple stock underperforms in 2024

Last year, the “Magnificent Seven,” the largest group of US-based technology companies, was the primary driver of the S&P 500’s performance, with some stocks notching staggering triple-digit gains. 

However, as the calendars switched to 2024, some stocks among the Magnificent Seven began to lose pace, and are now noticeably underperforming the broader market. Among those whose performance remains in the red so far this year is Apple stock. 

This drop-off comes as the world’s second-largest company in the world continues to face headwinds, most notably the waning demand and intensifying competition in the Chinese market, where Apple lost its position as the top smartphone seller.

Earlier this month, new data from the IDC showed that in the first quarter of 2024, Apple's market share in China dropped to 15.6%, a decline of 6.6% year-over-year, causing it to lose its top spot as the leading smartphone company. Instead, Honor now leads the market with a 17.1% share, closely followed by Huawei at 17%. 

"Apple's price promotions in the quarter were unable to mitigate the impact of the intense competition from Android players," a senior research analyst at IDC China said.

These demand concerns and declining market share have led to a series of Apple stock downgrades on Wall Street. Last week, analysts at Erste Group cut their rating on AAPL from Buy to Hold, citing slowing growth momentum that continues to negatively affect iPhone sales. 

Bernstein upgrades Apple stock rating

However, not all investment firms are losing confidence in Apple stock.

On Monday, Bernstein analysts lifted their rating on AAPL from Market Perform to Outperform and maintained a price target of $195, encouraging investors to “buy the fear” surrounding the world’s second most valuable stock. 

The investment firm believes that current weakness in China “is more cyclical and structural,” adding that the company’s China business has historically shown much higher volatility than Apple overall due to a “very feature-sensitive installed base.”

“We further believe that replacement cycle tailwinds and incremental generative AI features set up Apple well for a strong iPhone 16 cycle,” analysts added, forecasting iPhone unit growth of 10% year-over-year to 248 million for 2025. 

Bernstein notes that entering the Q2 results, expectations are low for Apple, with the company guiding around $80 billion in revenue for FY Q3. This figure falls below the consensus estimate of $83.4 billion, setting a cautious benchmark for the upcoming financial quarter.

“That said, we believe guidance could serve as a clearing event for the stock, similar to 2023 and 2019,” analysts said. 

“Moreover, AAPL is entering its seasonally strong trading period - the stock has outperformed in the 3 months leading into the iPhone launch in 15 of the last 17 years, and by an average of 1280 bps,” they continued.

Bernstein acknowledged near-term risks remain for Apple stock, including that the company may still be adjusting from Covid-era gains, and that the iPhone 16 could disappoint if key AI features are delayed until the iPhone 17 or later. 

In the long run, noteworthy threats to Apple include escalating US/China tensions, the rise of a super-app, and a shift to a new hardware form factor, analysts said.