Investors have seen the S&P 500 surge by 20% this year, a cause for rejoicing. However, this euphoria prompts a crucial evaluation of one’s investment portfolio, particularly with regard to Apple.
The tech giant’s stock has seen an 18.3% increase this year, slightly lagging behind the market trend. Nevertheless, Apple boasts a remarkable history of rewarding its shareholders, currently commanding a whopping $3.5 trillion market capitalization – a feat achieved by only a handful of companies that have crossed the trillion-dollar threshold.
Examining Apple’s iPhone Sales Trajectory
Apple’s revenue heavily relies on its iconic iPhone, constituting 52% of its $296.1 billion top line in the first nine months of the fiscal year. Despite its dominance, iPhone sales have faced challenges from fierce competitors like Huawei, with recent quarterly reports showing a 1% decline to $39.3 billion.
Furthermore, Apple’s market share has been slipping, dropping from 17.3% to 15.8% in the smartphone segment. The introduction of a new iPhone version with advanced features, including artificial intelligence, aims to invigorate sales. However, initial reports suggest lackluster reception. The upcoming earnings report will shed more light on the product’s impact.
Key Role of Service Sales in Apple’s Revenue Mix
Amidst the iPhone challenges, Apple’s services segment emerges as a beacon of growth. Sales in this category, encompassing advertising, cloud services, the App Store, and payments, surged by 14.1% to $24.2 billion in the latest quarter, boasting a significantly higher gross margin of 74% compared to 35.3% for products.
However, legal challenges from the U.S. government alleging an iPhone monopoly risk tainting the profitability of Apple’s service business. Additionally, the lukewarm reception of Vision Pro, a highly anticipated augmented and virtual reality headset, threatens to dent revenues significantly.
Evaluating Apple’s Investment Potential
Apple’s stock currently trades at a price-to-earnings (P/E) ratio of 34, up from 28 a year ago. Comparatively, the S&P 500 trades at a P/E of 30, rendering Apple relatively pricier than the market. This valuation hike demands commensurate growth potential, which the tech giant seems to lack.
While the new iPhone’s AI capabilities may offer a temporary advantage, the sustainability of this edge remains uncertain. Coupled with legal hurdles and tepid response to new products, the investment case for Apple appears bleak. It might be prudent for investors to divest their Apple holdings until a clearer growth trajectory emerges.
Exploring Alternative Investment Avenues
Considering the aforementioned challenges, exploring alternative investment options might be a prudent strategy. Seeking counsel from seasoned analysts, like those at Stock Advisor boasting a 781% average return, could uncover lucrative investment opportunities bypassed by mainstream investors.
While Apple maintains a place in the recommended stock list, diversifying one’s portfolio with other promising stocks could prove beneficial in navigating the uncertain market terrain.
*Stock Advisor returns as of September 30, 2024