A big fine in Europe adds to Apple’s 2024 woes. What it will take to get back on track

Apple shares tumbled on Monday after European regulators hit the tech giant with a big antitrust fine over music streaming. This latest setback raises the question: How can Apple get its groove back? The European Commission dished out a $1.95 billion fine — claiming Apple violated competition laws in the music streaming market. It’s one of the biggest penalties ever given to a tech company by the executive arm of the European Union. Apple has prevented rival streaming developers from informing iOS users about cheaper music subscriptions outside of its App Store, European regulators alleged. Apple plans to appeal the fine and said in a heated response that Spotify, a company headquartered in Europe, has been the “primary advocate for this decision” and the “biggest beneficiary.” Apple and Spotify have rival audio streaming services. “Spotify has the largest music streaming app in the world, and has met with the European Commission more than 65 times during this investigation,” the American iPhone maker said in a statement. “Spotify has a 56 percent share of Europe’s music streaming market — more than double their closest competitor — and pays Apple nothing for the services that have helped make them one of the most recognizable brands in the world.” Jim Cramer said Monday that European regulators view Apple and other American companies as cash cows. “Every six months, they ask for a check from our Big Tech companies,” he added. AAPL YTD mountain Apple (AAPL) year-to-date performance Shares of Apple dropped 2.5% on Monday as the European Commission’s fine announcement added to a series of recent woes for the company. So far this year, the stock has dropped 9% versus the S & P 500 ‘s 7.5% year-to-date advance. Apple has also been this year’s worst performer among our Super Six . Even Alphabet , which has been battling its own setbacks, has only declined roughly 4.5% year to date. The rest of them — Amazon , Meta Platforms , Microsoft and Nvidia — have been sharply higher in 2024, led by Nvidia’s 75% surge and Meta’s 41% advance. One of the biggest reasons for Apple’s rough 2024 has been slowing iPhone sales in China as domestic smartphone competitors like Huawei offer cheaper alternatives. Major Chinese third-party retailers are even offering steep discounts on the iPhone 15, in hopes of spurring demand for the latest iteration of Apple’s flagship device. Throw in a slew of cautious analyst calls at the top of the year, and it’s no wonder there’s a cocktail of weak investor sentiment. So, members might be wondering: How do these roadblocks impact our “own it, don’t trade it” thesis for Apple shares? The answer: They don’t. Jim also had a message for Monday’s Apple sellers. “If you want to sell now, be my guest,” he said. Jim has always been willing to acknowledge that Apple can sometimes get into a trading funk, but argues in the long run its excellence prevails. Yes, China represents a real risk for Apple. It’s the company’s second-largest market, accounting for nearly 20% of revenues. However, management is adapting to the uncertain operating environment by expanding manufacturing and retail into emerging economies like India . Club analysts say this is a wise move to capture smartphone share in an untapped market. Additionally, Apple’s growing Services business — made up of sales from the App Store, iCloud, Apple Music, and other offerings — continues to play a key role in boosting the company’s bottom line. Apple has an extremely loyal customer base because of the quality of its devices — which, in turn, brings more and more people to the ecosystem of high-margin services. A major question mark for Apple has been around artificial intelligence. Until last week, the company has been rather quiet about incorporating AI into its products and services. But in ditching its decadelong electric vehicle ambitions and throwing those resources behind AI , the company has given investors more clarity on its commitment to the technology. Last Wednesday, a day after reports of the shift, CEO Tim Cook said Apple sees “incredible breakthrough potential for generative AI, which is why we’re currently investing significantly in this area.” He added, “Later this year, I look forward to sharing with you the ways we will break new ground in generative AI.” That led to speculation about whether Apple’s annual developer conference in June might be the venue for further announcements. Melius Research said an AI-integrated iPhone would do wonders for sales and Apple’s stock price. “New AI services should compel users to upgrade iPhones, driving a Supercycle in 2025,” the analysts said in a note to clients Monday. “You’ll need a new phone since silicon, software, and security advancements will be optimized for generative AI applications.” Melius also sees upside to Apple Services due to AI-infused software features. Selling shares of any of the big tech firms ahead of anticipated AI efforts has historically been unwise, the analysts argued, citing the gains for portfolio name Microsoft. Melius said investors need to take a deep breath and look at the big picture when it comes to Apple, which has an active installed base of more than 2.2 billion devices. Jim described the Melius commentary as “really intelligent” because the Club is upbeat on any innovative updates to upcoming versions of the iPhone. Jim has also been a big believer in Apple’s new Vision Pro mixed reality headset as a long-term catalyst. Apple on Monday also announced that its latest M3 chips will be integrated into its new MacBook Air models, describing the line as the “world’s best consumer laptop for AI.” The news gives the Club further assurances of Apple’s commitment to AI as other personal computer makers update their products. (Jim Cramer’s Charitable Trust is long AAPL, META, AMZN, GOOGL, MSFT and NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Read More