By Ian Salisbury

Hedge funds that have soured on Apple stock may be overreacting, research from Goldman Sachs indicates.

Apple, with a $3 trillion market capitalization, may be the world's most valuable company. But shares have been hit hard by the Trump administration's China tariffs, which investors worry could push up the prices of its iPhones and other gadgets.

Apple has taken a number of steps to head off the tariff problem, including stockpiling devices, shifting production to India, and lobbying the Trump administration. The latter effort appeared to bear fruit this month, when the White House announced a tariff exemption for smartphones, laptops, and other devices.

Still, Apple is down about 18% this year, from $250 in December to $205 in midday trading Wednesday. That is more or less in line with other Magnificent Seven tech stocks, down 19% on average, but far worse than the S&P 500's 8% decline.

Investors see more problems ahead, according to a report Tuesday by Jefferies. Apple is now the most shorted stock in Jefferies "Sweet 16" basket of prominent technology companies, meaning traders have bet against the company by selling borrowed shares, aiming to buy them back later at a lower price.

Apple is so unpopular right now hedge funds have an average net -2% position in Apple, according to Jefferies. That means that if a fund had $100 million to invest, it would have a $2 million short position in Apple. The company makes up 7% of the S&P 500.

To put that in context, the next biggest underweight on Jefferies' list was Alphabet, Google's parent, which accounts for 4.2% of the S&P 500. Hedge funds had a net position of -0.2%.

Jefferies's report didn't include any commentary from hedge funds, a secretive bunch. But it isn't hard to see what might be worrying investors.

On Tuesday, UBS analysts lowered their 12-month target for Apple's stock price to $210 from $236. They cited the potential for tariffs and a backlash from Chinese consumers to hurt iPhone sales, which have been slowing in recent years as customers take longer to make upgrades.

"Given geopolitical risk could erode demand in China in the second half of fiscal '25 before contemplating a macro slowdown in the U.S. and Europe, we believe there is further downside risk to consensus iPhone unit estimate," wrote the UBS analysts. They maintained a Neutral rating on Apple stock.

Despite the troubles, Apple still has plenty of fans, including Goldman Sachs. The bank reiterated a Buy rating on the stock on Tuesday, lowering its price target from $259 to $256, a figure that suggests the shares could rally 25% in the next 12 months.

While Goldman acknowledged tariff risks and slowing gadget sales, it said investors are overlooking the potential benefits of Apple's loyal customer base. That loyalty translates into predictable revenue and profits that investors should prize, and will help Apple build its services business, including products like Apple TV+, Apple Fitness, and Apple Watch, according to Goldman.

"Apple's installed base growth, secular growth in services, and new product innovation should more than offset cyclical headwinds," Goldman Sachs wrote.

Write to Ian Salisbury at ian.salisbury@barrons.com

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April 23, 2025 14:21 ET (18:21 GMT)

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