AAPL

Apple Stock: Buy, Sell, or Hold?

Apple's (NASDAQ: AAPL) stock recently hit an all-time high after it unveiled Apple Intelligence, its closely watched expansion into the generative artificial intelligence (AI) market. The sprawling update will add AI-powered tools to write, edit, and summarize messages; search photos and videos; and create images from circled text and typed prompts. It will also integrate OpenAI's ChatGPT into Siri and its other iOS, iPadOS, and MacOS applications.

All of those new features could tighten Apple's grip on its customers and help it keep pace with its big tech peers in the artificial intelligence (AI) race, but will they actually move the needle for the company and drive its stock even higher?

Let's take a closer look at Apple and see if it's the right time to buy, sell, or hold its high-flying stock.

Apple's Piazza Liberty Store in Milan, Italy.

Image source: Apple.

The key facts and figures

In its latest quarter, Apple generated 51% of its revenue from the iPhone and 26% from its services, which include the App Store, iCloud, and subscription-based services. The remaining 23% came from its Mac, iPad, and wearables, home, and accessories divisions. Here's how those core businesses fared over the past two and half fiscal years.

Metric

FY 2022 Growth (YOY)

FY 2023 Growth (YOY)

First Half of FY 2024 Growth (YOY)

iPhone revenue

7%

(2%)

(1%)

Services revenue

14%

9%

13%

Mac revenue

14%

(27%)

2%

iPad revenue

(8%)

(3%)

(22%)

Wearables, home, and accessories revenue

7%

(3%)

(11%)

Total revenue

8%

(3%)

(1%)

Data source: Apple. Fiscal year (FY) ends in September. YOY = year over year.

Apple's sales of iPhones declined as the 5G upgrade cycle ended and it faced stiff macro and competitive headwinds in China. Its Mac sales tumbled in a post-pandemic market, and its iPad sales withered due to longer upgrade cycles and a lack of compelling new features in its latest models. The strong dollar exacerbated that slowdown over the past two years.

The only consistent bright spot for Apple has been its services business, which served over a billion paid subscribers at the end of the second quarter of fiscal 2024. That's more than double the number of subscribers it had four years ago. It's been relying heavily on the expansion of that ecosystem to lock more customers into its hardware devices.

Apple's iPhone sales still slipped in the first half of fiscal 2024, but most of that decline can be attributed to currency headwinds. Its services growth is accelerating again and its Mac sales are finally stabilizing, but its iPad sales are still slipping. Analysts expect Apple's revenue and earnings to increase only 1% and 7%, respectively, for the full year.

The reasons to buy or hold Apple

The bulls expect Apple's revenue growth to accelerate again in the second half of fiscal 2024 as its iPhone and Mac sales warm up again. They also believe its services revenue will continue rising and offset its other weaknesses.

Apple's near-term sales growth might seem anemic, but it ended its latest quarter with $162 billion in cash and equivalents, giving it plenty of room to make fresh investments, acquire smaller companies, and buy back more shares. It bought back 36% of its shares over the past 10 years as its stock price soared nearly 850%. That fortress balance sheet makes it a good safe-haven stock as long as interest rates stay elevated, even if it only pays a paltry forward dividend yield of 0.5%.

Apple also has other irons in the fire. Apple Intelligence could increase the stickiness of its ecosystem and make it easier to roll out new subscription-based services, while the Vision Pro might gain more traction as cheaper and lighter models hit the market. Therefore, it still seems like a good stock to buy and hold for the long term.

The reasons to sell Apple

Apple is still growing, but the bears will argue that its business is maturing, it faces unpredictable regulatory challenges, and its stock is overvalued. As the iPhone sees longer upgrade cycles, Apple will feel more pressed to expand its services segment to offset that pressure. However, antitrust regulators in the U.S. and Europe have been probing its services business and could gradually loosen its grip on its developers and users.

If antitrust challenges throttle the growth of Apple's services segment before its iPhone and Mac sales stabilize, it could face a prolonged slowdown. If Apple reacts to that deceleration by deworsifying its business with bad investments or focusing too much on big buybacks, it could be revalued as a slower-growth tech giant like IBM.

That's why the skeptics believe Apple is too pricey at 29 times forward earnings. IBM, which expects to generate low-single-digit earnings growth over the next few years as it expands its hybrid cloud and AI businesses, has a forward multiple of 17.

What's the right move right now?

Apple faces some near-term challenges, but I don't think it's the right time to sell the stock. It might also be too early to chase the stock after its latest AI-driven surge, so I think the best move right now is to simply hold it if you already own it.

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Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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