Apple Inc.’s stock, which performed well in 2023, is starting 2024 with challenges that raise concerns about its valuation for investors. The company has shifted into a slow-growth phase, experiencing a lack of year-over-year revenue growth in the past four quarters, primarily relying on its iPhone business, which faces innovation stagnation, affecting consumer device upgrades amid economic uncertainties.
Despite a 48% surge in Apple’s shares in 2023, the company reported quarterly revenue declines ranging from 0.7% to 5.5%. The December quarter is not anticipated to show significant sales growth, and the latest iPhones haven’t replicated the momentum of previous models. Apple faces intensified competition in the smartphone market, particularly from Chinese rival Huawei, which has overcome previous challenges.
In addition, Apple is dealing with legal challenges, including issues around its latest Apple Watch and a potential sweeping antitrust case reported by the New York Times, adding complexity to its outlook. The question arises whether Apple’s stock justifiably maintains a comparable or even higher valuation than Big Tech peers with more promising growth profiles.
Apple’s current P/E ratio stands at 27 times the consensus calendar 2024 earnings-per-share estimate, notably higher than Alphabet Inc. and Meta Platforms Inc., which trade at around 20 times their respective estimates. Analysts foresee higher growth rates for Alphabet and Meta compared to Apple, suggesting a potential overvaluation.
While Apple’s services business has shown consistent growth, concerns are raised about its sustainability. Analysts like Barclays’ Tim Long have expressed caution, noting the doubling of Apple’s P/E multiple in the last five years and a 50% increase in 2023. Some Wall Street analysts, including Long, have downgraded Apple due to weakened growth prospects.
Apple’s services business grew at a 9% rate in fiscal 2023, with expectations for growth to slow to 8% in fiscal 2025. Analysts stress the need for Apple to find a new growth engine, possibly through innovative products or services. The upcoming $3,499 Vision Pro mixed-reality headset could be such a product, but its success remains uncertain in a market yet to mature.
The law of large numbers presents a challenge to Apple’s future growth, and analysts are skeptical about achieving the double-digit growth seen in previous years. The company’s response to the U.S. Justice Department case and its ability to address growth concerns will play a crucial role in investors’ decisions. Analysts like Dan Ives of Wedbush Securities remain optimistic about Apple’s potential growth, emphasizing a significant opportunity to own Apple in fiscal 2024. The existential question for investors revolves around whether Apple can deliver substantial growth in the face of increasing uncertainty.