Shares sold short in Apple Inc. (NASDAQ: AAPL) jumped about 26% in the two-week period that ended May 15. A pool of traders believed that Apple’s shares have peaked near an all-time high. Likely, sales of Apple’s key products would need to falter for the “shorts” to be right.
Apple’s short interest rose to 77.9 million, an increase of 15.9 million. At $132, its shares trade near an all-time high, which has moved its market cap to $750 billion, the largest among all U.S. publicly traded corporations. And Apple has been the most important element in the improvement in the Dow Jones Industrial Average this year. Its share price increase of 19% in 2015 has helped move the index to over 18,000. The only Dow stock with a performance even close is Walt Disney Co. (NYSE: DIS), the shares of which are up 17% this year. These surges have more than offset the collapse of the stock of another Dow component. Shares of American Express Co. (NYSE: AXP) are off 14% this year.
The bear case against Apple falls into two camps. The first is that the extraordinary run of iPhone sales will slow. The slowdown of these smartphone sales do not have to falter much to cause investor anxiety. Apple sold 61.1 million iPhones in the most recently reported quarter. Sales of the iPhone contributed $40.2 billion of Apple’s total revenue of $58 billion. iPhone sales are expected to remain at those levels, particularly because of progress in China, which contributed $16.8 billion last quarter and is by far its fastest growing region based on revenue. Greater China sales rose 71% last quarter, compared to the same period last year.
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While sales of the Apple Watch product will not be a major contributor to the company’s revenue for some time, it is the most recent major new release in several years. Many analysts expect 10 million Apple Watch sales in 2015. Anything well short of that would be a major disappointment.
Among the other questions pessimists have about Apple’s share price is how long it can maintain double-digit growth. At some point, the stock will succumb to gravity. Short sellers will make a fortune, if they can time that event just right.
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