Over $200 billion of Apple’s market cap has vaporized since Thursday. Here’s what’s going on

Shares of Apple continued their post-earnings plunge on Monday, falling 1.7% despite a rebound in the broader market. The tech giant has now lost over $200 billion in market cap in less than a week, its worst five-day session since November 2022.

On the one hand, Apple’s size makes even a slight decline in its share price look pretty significant in terms of market cap, but on the other hand, the recent drop has been large by historical standards. Here’s why the market got so (relatively) spooked about Apple.

Falling revenues

The turbulence began on Aug. 3 when Apple reported that its iPhone sales had fallen well short of Wall Street’s estimates for the June quarter, leading to the company’s overall revenues dropping 1% year-over-year to $81.8 billion.

While Apple has grown its services segment revenues in recent years—adding billions to its top line from the App Store, iCloud services, as well as Apple Music, Apple TV+, and Apple Pay—iPhone sales still account for roughly 50% of total revenue. As a result of this reliance, the iPhone sales drop led to a wave of analyst downgrades for Apple’s stock last week.

Rosenblatt analysts downgraded Apple’s shares to “neutral” from “buy,” arguing the company is stuck in a “slowdown phase.” And Loop Capital analyst Ananda Baruah lowered his rating to “hold” from “buy” as well, noting that Apple’s current revenue guidance is at risk if iPhone sales don’t rise throughout the year.

It was a tough quarter for Apple’s hardware sales business overall. IPhone revenues fell 2.4% year-over-year to $39.7 billion, Mac revenues sank 7.3% to $6.8 billion, and iPad revenue plummeted 19.8% to $5.8 billion.

Weak guidance

Another reason for the recent sell-off in Apple stock was weaker-than-expected guidance from management.

For the September quarter, Apple said it expects gross profit margins to be between 44% and 45%, with flat to slightly slower year-over-year revenue growth. And while iPhone and services segment revenue may accelerate slightly, Apple CFO Luca Maestri said he expects revenue for the Mac and iPad to continue falling throughout the year.

Wedbush tech analyst Dan Ives, a noted Apple bull, admitted in an Aug. 3 note to clients the guidance was “a tad light of the Street.” And Bank of America analysts, in a similar post-earnings note, said the outlook showed Apple is facing a “backdrop of a weak U.S. smartphone market.”

A lofty valuation

Apple’s rich valuation is the third key reason that the stock is under pressure, according to analysts.

Despite three consecutive quarters of falling revenue, shares of Apple were up 51% year-to-date at their peak, leading its shares to trade as high as 33x times earnings. And even after the recent post-earnings stock price drop, Apple still trades at roughly 30 times earnings. For comparison, the S&P 500 trades at roughly 20 times earnings, per WSJ data.

Some analysts point to Apple’s cost cutting measures and growing high-margin services revenue as a reason to pay a premium for the stock, noting that overall net income rose 2.3% to $19.9 billion in the June quarter and services revenue jumped 8% to a record high $21.2 billion. But others argue that Apple remains overly reliant on waning iPhone sales in a difficult macroeconomic environment.

Still a long-term winner?

Apple’s latest quarter was enough to spook investors, but Wall Street analysts’ reaction was split, with many big names remaining upbeat about the tech giant’s long-term prospects despite the recent headwinds.

While investors fear that falling iPhone sales are an indication of waning demand for Apple’s most important product, bullish analysts note that, on a constant currency basis, revenues for the iPhone segment actually rose 1.4% year-over-year last quarter.

Wedbush tech analyst Dan Ives explained that iPhone revenues would have beat the Street’s consensus forecast excluding the foreign currency exchange headwinds and argued that strength in key overseas markets for the smartphone offers a runway for future growth.

China iPhone revenues, for example, rose 8% year-over-year in the second quarter and management told investors on a post-earnings call that India iPhone revenues hit a record high, although they declined to disclose the exact figures.

Ives also believes that the release of iPhone 15 in September will create a “mini super cycle” of demand for the product at a time when Apple continues to increase its services segment revenues.

“We believe iPhones and Services should be stronger than expected and remain the core of the Cupertino growth story,” he wrote, reiterating his “outperform rating” and a $220 price target.

That view was backed up by Bank of America analyst Wamsi Mohan in an August 3 note. Mohan said that he believes Apple’s services business revenue can continue to grow due to “improving trends in advertising, mobile gaming and App store sales.” He also highlighted the record number of “switchers”—consumers who opted to switch to an iPhone from another brand—in China in the second quarter, arguing it could help to offset a “weaker consumer spending environment” globally.

While most analysts remain bullish about Apple’s long-term prospects, there are some who worry that there could be more near-term pain due to the company’s lofty valuation and falling revenues.

UBS analyst David Vogt noted that despite “disappointing” hardware sales, Apple currently trades at a roughly 50% premium to the S&P 500. And he said that although some of his peers are brushing off declining iPhone, Mac and iPad sales as “transitory” and pointing to the potential for growth in the services segment, he’s worried about underlying demand.

“The gravity of a challenging smartphone market particularly in developed regions that should continue…is a headwind for the stock,” he wrote, reiterating his “neutral” rating and $190 12-month price target.

This story was originally featured on Fortune.com

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