Apple (NASDAQ: AAPL) has experienced a robust surge in its stock value, with shares escalating by 48% in 2023. Nevertheless, the recent performance of the company’s stock represents just one facet of its overall narrative.
Macroeconomic adversities encumbered Apple over the preceding year, leading to diminished consumer spending and recurrent declines in product sales. Compounded by impediments such as restrictions on its smartphones in China and a potential patent infringement issue associated with its new Apple Watch, these challenges resulted in a 3% year-over-year plummet in revenue for the company’s fiscal year 2023.
However, Apple perseveres as a colossal entity in the technology realm, demonstrating substantial financial resilience. Investor confidence has persevered despite the adverse market conditions, as evidenced by the growth in its stock value. While the company currently grapples with a slump, such circumstances are unlikely to endure indefinitely.
Navigating Market Challenges
During the past two years, inflation spikes prompted consumers to curtail discretionary spending, refraining from annual upgrades to their devices. For Apple, this transformation manifested in revenue downturns across its product segments. Notably, in fiscal 2023, net sales for the iPhone experienced a 2% decline year-over-year, whereas Mac revenue plummeted by 27%, and iPad sales receded by 3%.
Apple’s tribulations mirror the broader struggles encountered by numerous technology companies. According to the International Data Corporation (IDC), global smartphone shipments dwindled by 11% in 2022, persisting throughout 2023. Analogous contractions were observed in other tech domains such as personal computers during this period.
Recent data indicates a potential revival within the industry. The fourth quarter of 2023 witnessed a resurgence in smartphone shipments, with IDC reporting a 7% upsurge. Forecasts suggest a continuation of this recuperation and an approximate 4% escalation in 2024.
Representing over 50% of Apple’s revenue, the iPhone segment lay vulnerable to the downturn in the 2023 market. However, with the resurgence in tech sales and the company’s expansion into other sectors, there seems to be a glimmer of hope on the horizon.
Patience is Paramount
Despite the declines in its product segment, Apple achieved nearly $100 billion in free cash flow last year. This figure underscores the company’s robust financial foundation, empowering it to navigate prevailing headwinds effectively.
An encouraging development is the marked increase in Apple’s research and development spending, which surged by nearly $4 billion last year, constituting approximately 8% of its revenue. This elevated proportion represents the highest allocation to research and development in at least two decades. Interestingly, the last instance of a higher percentage coincided with Apple’s preparations for the debut of the initial iPhone and the expansion of its iPod business.
Apple’s roadmap for the next decade remains ambiguous. Nonetheless, it is highly probable that it incorporates pursuits in burgeoning industries such as artificial intelligence (AI) and virtual/augmented reality (VR/AR).
Likewise, the AI market is anticipated to expand at a compound annual growth rate (CAGR) of 37% through 2030, potentially exceeding a valuation of $1 trillion. Concurrently, VR is charting a parallel trajectory, with the sector poised to grow at a CAGR of 29% over the same period.
Apple’s CEO, Tim Cook, has hinted at significant investments in AI. A Bloomberg report last year suggested that Apple had developed a substantial language model akin to OpenAI’s ChatGPT. The company has harnessed AI to enhance its products, effecting improvements to Siri and various AI-enabled features on the iPhone and Apple Watch. However, the substantial investment suggests the potential for a more extensive undertaking.
With regards to VR/AR, Apple is primed to introduce its inaugural headset, the Vision Pro, next month. Although the price point at $3,499 may deter several consumers, this unveiling signifies a long-term strategy for Apple to eventually establish dominance in this high-growth sector. Recalling a strategy previously employed with its past products, Apple is likely to lower the cost of the Vision Pro with future iterations, utilizing this period to generate anticipation and refine the technology.
Despite Apple’s price-to-earnings ratio of 30 and a price-to-sales ratio exceeding 7, rendering its stock seemingly costly, a comparative analysis against other companies in “Big Tech” position Apple as one of the most economical stocks, comparable to Alphabet.
Although the journey ahead may be protracted, an ameliorating consumer market combined with substantial investments in multiple high-growth spheres bode well for Apple’s future. Recent maneuvers signal an expansion of its economic moat, bolstering its competitive edge against rivals. Consequently, investing in Apple’s stock remains an enticing long-term prospect.
Should you invest $1,000 in Apple right now?
Before committing to Apple stock, it is prudent to contemplate the following:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.