Apple Stock: Buy, Sell or Hold?

AppleIt is (NASDAQ:AAPL) The stock recently hit a record high after unveiling 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 apps.

All these new features could strengthen Apple’s grip on its customers and help it keep pace with its big tech peers in the race for artificial intelligence (AI), but will they really shake things up for the company and make its stock rise even more?

Let’s take a closer look at Apple and see if now is a good time to buy, sell or hold its high-flying stocks.

Key facts and figures

In its most recent quarter, Apple generated 51% of its revenue from the iPhone and 26% from its services, which include the App Store, iCloud and subscription services. The remaining 23% came from its Mac, iPad and wearables, home and accessories divisions. Here’s how these core businesses have performed over the past two and a half fiscal years.

Data source: Apple. The fiscal year (FY) ends in September. YOY = year after year.

Apple’s iPhone sales declined late in the 5G upgrade cycle and the company faced tough macroeconomic and competitive challenges in China. Its Mac sales have fallen in a post-pandemic market and its iPad sales have declined due to longer upgrade cycles and a lack of compelling new features in its latest models. The strong dollar has exacerbated this slowdown over the past two years.

The only consistent bright spot for Apple has been its services business, which had more than 1 billion paying subscribers at the end of the second quarter of fiscal 2024. That’s more than double the number of subscribers that she counted four years ago. The company is leaning heavily on expanding this ecosystem to attract more customers to its hardware devices.

Apple’s iPhone sales declined further in the first half of fiscal 2024, but most of that decline can be attributed to currency headwinds. Its service growth is accelerating again and its Mac sales are finally stabilizing, but its iPad sales continue to decline. Analysts expect Apple’s revenue and profits to rise just 1% and 7%, respectively, for the full year.

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Reasons to buy or hold Apple

Bulls expect Apple’s revenue growth to accelerate again in the second half of fiscal 2024, as iPhone and Mac sales heat up again. They also believe revenue from its services will continue to grow and offset its other weaknesses.

Apple’s near-term sales growth may seem anemic, but it ended its most recent quarter with $162 billion in cash and equivalents, giving it plenty of room to make new investments, acquire smaller companies and buy back more shares. It has repurchased 36% of its shares over the past 10 years as its stock price has soared nearly 850%. This fortress balance sheet makes it a good safe haven as long as interest rates remain high, even if it only pays a meager 0.5% forward dividend yield.

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

Reasons to sell Apple

Apple continues to grow, but bears will say its business is maturing, it faces unpredictable regulatory challenges and its shares are overvalued. As the iPhone experiences longer upgrade cycles, Apple will feel more compelled to expand its services segment to offset this pressure. However, antitrust regulators in the United States and Europe have been investigating its services business and may gradually loosen its grip on its developers and users.

If antitrust challenges dampen growth in Apple’s services segment before iPhone and Mac sales stabilize, it could face a prolonged slowdown. If Apple responds to this deceleration by devaluing its business with bad investments or focusing too much on big buyouts, it could be revalued as a slower-growing tech giant like IBM.

That’s why skeptics think Apple is too expensive, at 29 times forward earnings. IBM, which expects to generate single-digit profit growth in the coming years as it expands its hybrid cloud and AI businesses, has a forward multiple of 17.

What is the right decision right now?

Apple faces near-term challenges, but I don’t think now is a good time to sell its shares. It may 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 on to it if you already own it.

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

Apple Stock: Buy, Sell or Hold? was originally published by The Motley Fool