Apple Stock: Bear vs. Bull
Apple (NASDAQ: AAPL) has featured in countless headlines this month after hosting its Worldwide Developers Conference, where it unveiled its first virtual/augmented reality (VR/AR) headset called the Vision Pro, a 15-inch MacBook Air, an upgraded Mac Studio, a new Mac Pro, and several software updates.
Wall Street has particularly fixated on the potential of the Vision Pro, with some analysts claiming it could see Apple's business soar in the coming years, while others are more pessimistic. Despite the uncertainty surrounding the Vision Pro, Apple continues to have a solid outlook thanks to the dominance of its smartphone business. The popularity of Apple's iPhone has granted it immense brand loyalty from consumers and has boosted its other segments.
Apple's stock has become one of the most reliable stocks available thanks to its consistent gains. However, before investing in this tech giant, it's best to understand the potential positives and negatives of its future.
Here's the bear vs. bull of Apple stock.
Bear: The Vision Pro won't boost earnings for years
Apple's debut of the Vision Pro garnered mixed reactions. The device seemed to take leaps in innovation with its ability to complete everyday computing tasks such as word processing, web browsing, and video editing while utilizing advanced hand and eye tracking. However, its hefty price tag of $3,499 has severely limited its consumer reach. As a result, it'll likely take years before Apple substantially profits from the headset and the growing VR/AR market.
The good news is the company has used a similar pricing strategy with past products. Apple debuted the iPhone, iPad, and Apple Watch at relatively high prices, later releasing more budget-friendly versions once its products proved successful with consumers. The company will likely launch a lower-priced Vision headset after a few generations of updates, potentially a non-Pro version. Until then, Apple could use this time to build hype for the technology before unveiling the mass-market device and come out swinging on launch day.
According to data from Fortune Business Insights, the VR market on its own is projected to expand at a compound annual growth rate of 45% through 2029. Meanwhile, Apple is well equipped to dominate the industry, surpassing competitors like Meta Platforms and Sony, with its headset being the only one to offer consumer-favorite apps such as FaceTime and Messages.
Investing in Apple for its VR/AR prospects isn't a bad idea, but it's essential to keep in mind that patience will be key to seeing significant gains.
Bull: The power of the iPhone
Apple's biggest asset by far is its iPhone business. The company's smartphone segment made up over 50% of its revenue in fiscal 2022. Additionally, the iPhone continues to report respectable growth, with revenue rising 7% to $205 billion last year.
The iPhone's dominance saw Apple reach a new milestone last year, surpassing Alphabet's Android for a majority market share in U.S. smartphones. The achievement is promising as the iPhone is Apple's biggest driver of brand loyalty with consumers, which leads to growth in its other segments. iPhone users are far more likely to turn to Apple for other tech needs, thanks to the advanced connectivity between its devices. This connectivity makes it easier for users to stay within Apple's product ecosystem than to use a competing device.
Moreover, the company's product strategy has seen it achieve leading market shares in headphones, tablets, and smartwatches despite each of these sectors being dominated by other tech companies before Apple landed on the scene. The tech giant's history of success when entering new product categories plays in its favor for its long-term potential in VR/AR.
In addition to products, the iPhone's success has bolstered Apple's digital services business. The segment has become the company's second-highest-earning segment and offers attractive profit margins of around 72%. The subscription-based business has diversified Apple's earnings, allowing it to lean less on product sales and take chances on new products.
Apple's annual revenue has risen 48% since 2018, with operating income climbing 68%. Meanwhile, the company has proven time and time again its value as a reliable growth stock, with shares rising nearly 300% in the last five years. It may take time before Apple profits from the Vision Pro, but its other segments are capable of keeping the company moving forward. As a result, Apple's stock is an immensely attractive long-term investment.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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, Apple, and Meta Platforms. The Motley Fool has a disclosure policy.
