We’re less than a month into the new year, and already one of the 30 components of the Dow Jones Industrial Average separated itself from the pack in a bad way.
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That stock is Apple (NASDAQ: AAPL), which is down 8.2% in 2025, at the time of this writing.
Here’s why Apple is under pressure and if the sell-off in the growth stock is a buying opportunity.
Image source: Getty Images.
Apple’s valuation is strained
Apple stock has continued to run higher while its sales and earnings growth dramatically slowed, especially in the last two years. Over the last five years, the stock price is up 262%, revenue is up just 45.9%, and diluted earnings per share (EPS) increased by 90.5%.
Since Apple’s stock price has grown faster than earnings, its price-to-earnings (P/E) ratio soared to sky-high levels relative to its historical average. In fact, Apple’s forward P/E ratio is higher than its average P/E ratio over the last three to 10-year periods. Even if Apple achieves analyst consensus earnings estimates over the next 12 months and the stock price stays the same, it would still be relatively expensive.
AAPL PE Ratio data by YCharts
Granted, the best companies have a way of growing into their valuations over time. But only if they sustain quality earnings growth, which Apple isn’t doing. In fact, Apple is losing its once unstoppable lead in key markets.
Competition is heating up
According to reports by Reuters, Apple’s annual shipments in China declined by 17% in 2024, accentuated by a 25% decline in the fourth quarter. Apple now has a 15% market share in China, slightly behind both Vivo and Huawei.
Perhaps the best reason to buy Apple stock is if you think it can recover in China. If that were to happen, it would look like a much better value. After all, Apple is still growing its earnings — driven by strength in its services segment.
In the past, the majority of Apple’s breakthrough innovations were related to hardware. The transition from the iPod to the iPhone and advancements with iPhone, iPad, Apple Watch, and Apple AirPods enhanced the Apple ecosystem. However, Apple’s services segment has been the true star in recent years. Services like Apple Music, Apple TV+, iCloud, and more are high-margin cash cows that have helped Apple diversify beyond physical products. However, the business relies heavily on products, with 75% of fiscal 2024 revenue coming from products.
The dependence on products, paired with a lack of breakthroughs in recent years, has put glaring question marks on Apple’s ability to innovate. Apple’s latest product upgrade, the Vision Pro, is very innovative but hasn’t translated to meaningful sales. It doesn’t integrate with the rest of the product lineup as well as Apple Watch and AirPods do because those products were relatively affordable accessories marketed to all iPhone users, whereas Vision Pro is $3,499.
Apple’s ace in the hole
Despite its sluggish growth, Apple generates so much extra cash that it can afford to buy back a boatload of its own stock. Apple reduced its outstanding share count by 34.8% over the last decade. It spent a record $95 billion on buybacks over the last year. For context, that’s roughly the entire value of Spotify Technology.
AAPL Shares Outstanding data by YCharts
With fewer shares to go around, Apple has been able to grow EPS at a far faster rate than net income. However, some investors may prefer to see Apple scale back its stock repurchases and divert those funds toward reinvesting in the core business or an acquisition.
The key takeaway is that despite Apple’s slowing growth, it still has plenty of advantages compared to other companies, which arguably justifies a premium valuation. Apple has been fairly conservative with its capital allocation. It has also been criticized for a slow rollout of generative artificial intelligence (AI) functionality. However, Apple’s next iPhone series could include far more advanced AI upgrades and spur growth.
There are better buys than Apple right now
Given Apple’s valuation, investors should only consider the stock if they are confident in the company’s ability to monetize AI while continuing to grow its services segment. Just last April, Apple stood out as a compelling value stock. It has rallied around 40% since then, but its results haven’t been that impressive.
Apple seems like a stock to keep on a watchlist rather than buy now. There are plenty of better alternatives in the tech sector.
Microsoft has a more reasonable valuation and better growth prospects. Even Nvidia, which is more expensive than Apple, is arguably a better buy because of its undisputed industry leadership, whereas Apple’s leadership is being challenged.
In summary, Apple stock ran too far too fast in 2024, and now it has to prove it’s worth the premium price.
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Spotify Technology. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.