What's Going On With Apple Stock Friday?

Apple Inc AAPL stock got a boost from Morgan Stanley's re-rating.

Analyst Erik W Woodring reiterated an Overweight rating with a price target of $215.

Apple's -6% stock move in the last two trading days looks unwarranted relative to the 4% revenue and 3% EPS downside (~20c) if Apple were to cede all of the share it has gained from Huawei Technologies Co, Ltd in the high end ($500+ ASP) Chinese smartphone market over the last three years, or about 18 million units (~40% of Apple's T12M China iPhone shipments). 

However, the analyst believes the market is hinting at something broader. China could potentially be on the path to becoming more nationalistic, which would put over $30 billion of operating profit (over 20% of AAPL's total operating profit) at risk should China decide to limit Apple's access to the Chinese market. 

The analyst justifies market overextrapolation, citing that supply constraints will significantly limit Huawei's 5G smartphone shipments. While China is critical to Apple's success, Apple is also essential for the Chinese economy. 

Interestingly, Apple is also vital to China's economy, employing millions of Chinese workers through device production and app development, and has helped build an entire supply chain. 

Therefore, Apple's recent stock move is indeed overdone as it implies Apple loses ~70% of its iPhone shipments in China, a highly draconian and unlikely scenario. 

Since Huawei's restrictions in 2019, Apple has gained ~20 points of China's premium smartphone share and now commands 60% of the market, while Huawei has lost ~35 points of premium share, resulting in just a 15% market share.

Huawei's re-emergence into the 5G smartphone market is not a material downside risk as Apple's ecosystem in China remains very strong, Huawei smartphone volumes will likely be relatively small, and chip supply remains a gating factor, with the potential for further restrictions to the Huawei supply chain.

Price Action: AAPL shares traded higher by 1.13% at $179.76 on the last check Thursday.