By CCN.com: Wall Street is showering love on Apple’s stock. The iPhone maker recently hit a $1 trillion valuation. Analysts and investors are willing to overlook the problems with the company’s second-quarter earnings report, including Gene Munster. He believes that Apple’s stock could rally more than 70% in the next couple of years.

Munster suggests that Apple’s stock could hit $350, but he might have to eat his words. The company’s biggest business is going down the drain.

Huawei grows spectacularly as Apple’s iPhone sales slump

Apple’s iPhone revenue was down 17% year-over-year in the quarter thanks to weak demand out of China and the overall slowdown in smartphone demand. But CEO Tim Cook cannot use that as an excuse. Rival Huawei delivered smashing smartphone sales during the first calendar quarter of 2019.

IDC reports that Huawei’s smartphone shipments increased 50% year-over-year to 59.1 million units in Q1 2019. The whopping jump in Huawei’s smartphone shipments pushed its market share to 19% at the end of the quarter compared to 11.8% in the year-ago period.

Apple’s iPhone shipments, on the other hand, dropped 30.2% year-over-year to 36.4 million units, while market share slipped 4 percentage points to 11.7%.

Huawei’s share gain has strengthened its grip over the second spot in the smartphone industry. Apple is now a distant third and could slip to fourth as another Chinese rival, Xiaomi, is doing better than the iPhone maker.

The iPhone slump is hurting Apple’s numbers

This huge drop in iPhone sales is a bad omen for Apple’s stock, as the smartphone business accounts for 53.5% of total revenue. Not surprisingly, Apple’s top line slumped 5% year-over-year last quarter as iPhone revenue was down 17% from the year-ago quarter.

The top-line drop put a dent in Apple’s net income, which was down close to 16% from the prior-year period. Analysts expect Apple’s earnings to decline this fiscal year, and chances of the bottom line improving will be remote if the iPhone sales decline continues.

Huawei, meanwhile, believes it can fortify its second place in the smartphone market by shipping around 250 million – 260 million smartphones this year. For comparison, Huawei shipped 200 million smartphones in 2018.

Lack of innovation

Bernstein Research analyst Mark Li estimates that Apple’s iPhone shipments could fall 13% this year. Huawei is likely to grow once again in 2019 at Cupertino’s expense.

If this happens, Gene Munster and his associate at Loup Ventures, Will Thompson, will find it difficult to justify their $350 stock price target. The two recently compared Apple’s stock to established consumer staples companies and services businesses to justify the valuation, including the likes of Clorox and Coca-Cola.

The analysts seem to forget that Apple is a tech company and could fall prey to changing customer trends, just like BlackBerry did a few years ago. Cupertino has lost its competitive edge and holds a dismal rank on the list of most innovative companies where it was occupying the top spot earlier.

Stability in iPhone sales is not guaranteed and investors shouldn’t bet the house on the services business, which supplies around 20% of the total revenue. As iPhone sales decline, the services business could follow suit because of the simple reason that there won’t be enough devices selling those services.

So don’t be surprised if Apple’s stock goes the other way instead of going to $350 as Munster predicts. Huawei is stealing its smartphone thunder.