Why Apple Stock Climbed on Wednesday

What happened

Shares of Apple (AAPL 1.30%) climbed higher on Wednesday, adding as much as 2.4%. As of 12:42 p.m. ET today, the stock was up 1.3%.

The catalyst that sent the stock higher on a mixed market day was news that iPhone demand may be holding up better than investors expected, which could spell additional upside for the stock.

So what

After initiating supply chain checks in China, Wedbush analyst Daniel Ives concluded there have been “steady with slight improvements, despite the zero-COVID-driven demand issues.” The Chinese government has acted swiftly, initiating lockdowns for some of the country’s largest cities to curb the spread of the pandemic, which has caused intermittent delays in the manufacturing sector.

Apple has not been immune as the iPhone factories were temporarily shuttered earlier this year.  

However, Ives’ checks suggest iPhone sales could surprise to the upside. “We believe iPhone demand is holding up slightly better than expected,” the analyst wrote, “despite the various supply issues that have plagued Apple and the rest of the tech sector.” Furthermore, Ives believes that worry over the iPhone supply chain and production issues should peak in the June quarter, giving way to optimism regarding the coming launch of the iPhone 14, which is expected this fall.

Now what

It’s important to note that any protracted economic downturn would weigh on the tech giant’s stock, at least in the short term. With an average iPhone selling price of roughly $825, consumers would likely put off upgrading to the latest device, which in turn would pressure Apple’s revenue.

The iPhone is by far the biggest contributor to Apple’s revenue. In the March quarter, iPhone sales topped $50.5 billion, up 5.4% year over year, accounting for roughly 52% of the company’s total revenue. In the event of a recession, sales could temporarily stall, which would spook investors. 

That said, Apple dominates the global smartphone market, taking home roughly 44% of worldwide smartphone revenue last year. Additionally, with more than $192 billion in cash and marketable securities on its balance sheet, the company has the resources to weather any economic storm, and should be viewed as a safe haven for investors with a long-term outlook.