President-elect Donald Trump’s proposed tariff strategy could spell bad news for the tech hardware market, but Tim Cook’s Apple might not feel as much of the pain. On the campaign trail, the former president vowed to impose a universal tariff of between 10% and 20% on all imported goods and at least a 60% tariff on goods from China. Yet, some analysts say that Apple’s high gross profit margins may provide a buffer, unlike other companies with smaller margins that also have extreme exposure to Chinese manufacturing. “While AAPL is thought of as the ‘poster-child’ for leveraging Chinese manufacturing, and thus most at risk if tariffs were to be instituted, they don’t face the most significant [earnings per share] headwind in our coverage given they have a higher gross margin than peers, which limits the incremental tariff impact,” Morgan Stanley analyst Erik Woodring told clients in a note this month. AAPL YTD mountain AAPL, year-to-date That reassurance comes as Apple has been underperforming the stock market’s ‘Trump plays’. For instance, Tesla – which soared nearly 15% the day after the election – has jumped almost 28% in the eight trading days since the vote. Apple over the same span has barely budged. The iconic iPhone and iMac maker has also underperformed the rest of the market for the entire year thus far. While Apple has gained almost 17% this year, the S & P 500 has advanced about 23%, excluding reinvested dividends. Bite out of earnings During Trump’s first term in office, Apple dodged tariffs on its core products when the U.S. reached a trade agreement with China that exempted some consumer goods made in that country – such as phones and computers – from the charges. But assuming there are no exemptions for Apple this time around, Morgan Stanley foresees an EPS loss for the company of 5.5% under a 15% tariff on U.S.-bound imports from China. Under a 25% tariff on goods from China, the Wall Street investment bank sees an EPS loss for Apple of 9.2%. Those estimates make Apple the fifth most vulnerable tech company to potential tariffs on goods from China in Morgan Stanley’s research coverage. “Ultimately, it’s a negative,” CFRA Research analyst Angelo Zino told CNBC. “It’s going to somehow eat into Apple’s earnings, whether it be through potentially lower volume if they push through it or via just lower margins if they were to absorb some of the cost.” Still, Zino believes any impact could be relatively muted – and potentially offset by moves by the president-elect to put the Department of Justice’s lawsuit against the company in limbo. “This is a company with, I’d say, greater pricing power than just about any other company out there,” Zino continued. “If you get this tariff across the board, it probably impacts, in my view, Apple less than it does others out there from a negative perspective.” Bank of America analyst Wamsi Mohan agrees, seeing any tariff impact as “manageable.” He sees a 60% tariff on Chinese goods possibly resulting in about a 4% hit to Apple’s EPS. That’s if Apple opts against raising prices in the U.S. in response to tariffs. If Apple chooses to raise prices by 10% to pay for higher tariffs, the Bank of America analyst said it would have an even smaller, “negligible” impact on earnings. As a result, he has a buy rating on the stock, and his price target of $256 implies nearly 14% upside from Friday’s close. Others, like Bernstein analyst Toni Sacconaghi, forecast about a 7% hit to Apple’s EPS. By contrast, Dell – which he noted looks positioned to be “most vulnerable” to tariffs – could see an EPS impact of up to about 90%, according to his model. Apple appears “less vulnerable than most might believe,” Sacconaghi said, thanks to its already high profit margins. He has an overweight rating on the stock and a 12-month price target of $240, which would equal more than 6% upside ahead, as of Friday’s close. How could Apple respond It’s also possible the Trump administration could continue granting exemptions for Apple after the inauguration on Jan. 20. If not, Apple could still mitigate any impact by expanding its manufacturing in other countries, such as India – which it’s already begun to do. Last fiscal year, Apple doubled the number of iPhones it makes in India, producing $14 billion worth. The company makes 14%, or about 1 in 7, of its iPhones there. “If a new tariff is imposed on imports from China, Apple could have its manufacturing partners ramp up production in India and ship to the U.S. from there,” BofA’s Mohan told clients in a recent report. “The same applies to other Apple products that are manufactured in countries outside of China, including Vietnam, Malaysia and others.” At the end of the day, Mohan assumes that 80% of all Apple products sold in the U.S. could be sourced from countries outside China. Partly for that reason, Jason Snipe of Odyssey Capital Advisors is sticking with Apple. Tariffs aside, he points to future iOS updates with the release of the iPhone 17 – notably, the incorporation of new Apple Intelligence features – as the catalyst for another sales “supercycle.” “It might be in a trading range for a little while,” the chief investment officer told CNBC. “But I do think once the focus shifts, the new administration comes in, all this tariff talk starts to quiet down some, I think that’s when people will start to say, ‘Wait a minute, I think Apple has legs.'”
