Investing in Apple Stock Right Now: Potential Lifetime Financial Security?
Apple (AAPL* 0.41%) has soared to become one of the globe's largest corporations over the last few decades, transforming countless investor lives in the process. Even a paltry $1,000 invested in 2005 – 25 years after the company went public – would now be worth over $117,000 today.
Today, Apple's brand is globally famous, and more than 2 billion individuals use iPhones and other iOS devices. Now, the company is stepping into its next chapter. It recently introduced Apple Intelligence, its most significant push yet into artificial intelligence (AI). Investors hope that AI will propel the company and its stock to fresh heights. So, can purchasing the stock today set you up financially for life?
Here are three crucial points to consider.
1. Apple's success is now posing challenges
There's no denying that Apple is a colossus now. The company's $3.4 trillion value, and its $110 billion share repurchase program, announced earlier this year, is the largest in U.S. history. Its customer base is extensive, acting as an excellent distribution network for selling subscription services and new products.
However, at some point, a company grows so large that its size starts to hinder it. Apple's $391 billion in trailing-12-month sales are staggering, but they've only increased by 3.3% in the past three years. The Apple Intelligence-enabled iPhone 16 may spur growth, but management anticipates only a meager single-digit revenue increase next quarter, which includes the holiday season. So far, it seems unlikely that the company will enjoy the iPhone upgrades Wall Street anticipated.
Raising the bar so high can eventually become challenging to maintain. Sadly, the current business model, which still relies heavily on iPhone sales, might be nearing its ceiling.
2. The stock's valuation is stretched
Apple is a universally revered company, and the stock may perpetually command a premium valuation compared to most others. However, the market doesn't issue free passes. Without substantial organic growth, it may start to reassess Apple's valuation.
That could be a concerning situation, given where the stock is today. Shares currently trade at a forward price-to-earnings ratio (P/E) of 31. At the same time, analysts have gradually reduced their long-term growth estimates to roughly 9.5%.
This results in a price-earnings-to-growth ratio (PEG) of 3.2, which is quite high for even a high-quality company like Apple. Essentially, the stock is rather expensive considering the growth you're likely to get back. Although it won't necessarily crash, it could decrease future investment returns due to the stock's price lagging behind Apple's earnings growth.
3. Investors may require a new iPhone breakthrough
It seems that Apple has lost momentum in recent years. The business is slowing, and its valuation will only continue climbing for a certain period. A stock's valuation feels heavier the higher it ascends. The solution is obvious: The business needs a new "iPhone moment," a transformative catalyst, similar to the original iPhone in 2007.
Is Apple Intelligence big enough? According to some consumer research, AI features alone don't have enough impact to stimulate iPhone sales.
It might be time for something new, something major. Management has tried some new endeavors. It released a virtual reality headset, the Apple Vision Pro, but it appears to be a failure. Production has been scaled back due to a lack of demand. The company has spent years quietly researching autonomous vehicles, but reportedly abandoned the project earlier this year.
Can Apple stock set you up financially for life?
Writing off Apple would be foolish; the company has proven it can score big when it does find success. Plus, it has nearly unlimited resources to continue exploring new frontiers to discover the next major breakthrough. However, until that moment occurs again, it will be challenging for the stock to maintain the exceptional returns investors have grown accustomed to. So no, if you're aiming to go from poverty to wealth, Apple stock likely isn't for you anymore.
But that doesn't mean that Apple isn't still a stellar stock.
You'll struggle to find a more impressive consumer brand today. Apple's ability to pay dividends and repurchase massive amounts of stock (35% share count reduction over the past decade) should still generate solid, possibly even market-beating long-term returns. You simply need to adjust your expectations to Apple's new reality.
In light of the challenges Apple is facing with its current growth rate and reliance on iPhone sales, some investors may choose to diversify their investing portfolio by exploring other financial opportunities. For instance, they might consider investing in various sectors that are showing promising signs of growth, such as renewable energy or technology companies focused on emerging technologies like artificial intelligence.
Given that Apple's stock is currently trading at a relatively high price-to-earnings ratio, it might be wise for investors to consider the potential returns they can expect and adjust their investment strategies accordingly. While Apple remains an attractive and stable investment option due to its strong brand and consistent dividend payouts, it might be beneficial to expect moderate returns rather than the exceptional growth rates seen in the past.
