The Great Wall Between Apple and Growth: This tech giant's China problem is worse than it seems…

Today, I would like to echo my friend and colleague, Professor Joel Litman’s investing-related coaching comment to his workforce at Valens Research.

Keep reading the article below to know more about this.

The Great Wall Between Apple and Growth: This tech giant's China problem is worse than it seems…

The world of investing is often defined by what people don’t see coming.

At times, it’s not the obvious headlines that matter most, but the undercurrents that quietly shift beneath the surface—signals most investors miss until it’s too late.

That’s exactly what  Professor Joel Litman , Chairman and CEO of  Valens Research  and Chief Investment Officer of  Altimetry Financial Research, highlighted when he peeled back the curtain on Apple’s growing challenges.

For decades,  Apple  has held an almost unshakable grip on the tech hardware industry. Its brand, its ecosystem, and its financial strength have all fueled investor confidence.

However, according to Professor Litman, the story isn’t nearly as bulletproof as Wall Street seems to believe.

Professor Litman pointed out a fact many investors gloss over: Apple is dangerously reliant on China—not just for manufacturing, but also for sales.

In fact, more than 95% of Apple’s iPhones, AirPods, iPads, and Macs are built in Chinese factories… and in fiscal year 2023, roughly 19% of Apple’s sales came directly from the Chinese market.

That dependency is becoming more precarious.

Recently, Beijing imposed restrictions on iPhone usage among government employees over “security concerns.” At the same time, Chinese regulators have hinted at probing Apple’s App Store fees and third-party restrictions.

According to Professor Litman, this is no minor regulatory hiccup. It echoes global pushback against Apple’s closed ecosystem.

For example: The European Union (EU) recently forced Apple to allow third-party apps and payment systems, cracking open a revenue stream Apple has long protected.

If China follows through with similar demands, the consequences could cut deeply into profitability.

The problem doesn’t end with regulation, though. Apple’s once-unshakable dominance in the Chinese smartphone market has already taken a hit.

In 2024, the company slipped from the No. 1 spot down to No. 3, overtaken by domestic players  Vivo  and  Huawei.

As Professor Litman emphasized, this isn’t just about competitive products; it’s also about government support.

China has made no secret of its preference for local champions, and its policies increasingly tilt the playing field in favor of homegrown brands.

Apple, with its closed app system and steep 30% in-app purchase fees, is a ripe target.

If forced to lower fees and open up its tightly controlled ecosystem, Apple could see revenue streams weaken in ways U.S. investors have yet to fully price in.

What the Market is Missing

Professor Litman underscored this disconnect through Valens Research’s Embedded Expectations Analysis (EEA) framework.

The framework compares the market’s implied expectations—reflected in current stock prices—with the firm’s own forward-looking cash flow projections.

The findings are striking. Apple’s Uniform return on assets (ROA) reached an astounding 45% in 2021, nearly four times the U.S. corporate average.

Today, investors expect that number to rise even higher, to 53% by 2029.

Professor Litman cautioned that such optimism is misguided. Between intensifying competition, regulatory headwinds, and geopolitical risks tied to the U.S.-China trade war, the more realistic trajectory points  downward , not upward.

He even warned that the market is setting Apple up on a pedestal, when the ground beneath it is shaking.

The bigger issue is that Apple is stuck in a delicate balance. It needs China to maintain its global dominance, both as a production hub and as a consumer base.

Yet, the very reliance that has fueled its growth now exposes it to risks largely outside its control.

Geopolitical flare-ups, regulatory crackdowns, and nationalist support for local brands all threaten Apple’s position in ways that could erode long-term profitability.

Any escalation in the U.S.-China standoff could magnify those risks overnight.

The takeaway here?

If you’re investing in Big Tech, you have to  stop underestimating  Apple’s vulnerabilities.

The company has mastered the art of consumer loyalty and premium branding, but even giants can stumble when the foundation shifts.

Wall Street’s rosy expectations assume business as usual. However, the evidence Professor Litman presented suggests otherwise: A company caught in a geopolitical crossfire, pressured by regulators, and losing ground to local competitors in one of its most critical markets.

So, it’s time to question the consensus.

Apple’s stock price may not fully reflect the hidden storm brewing beneath the surface, and those who fail to recognize it could be in for a costly surprise.

Hope you’ve found this week’s insights interesting and helpful.

Stay tuned for next Wednesday’s The Independent Investor!

While AI is a transformational innovation, it is not a substitute for human labor and ingenuity.

Learn more about  the negative impact of overreliance in AI  in next week’s article!