Summary
Despite bearish views, I believe Apple remains a compelling buy-and-hold stock for long-term investors, even at its current high price.
Concerns include underwhelming iPhone 16 sales, intensified competition in China, longer upgrade cycles, and rich valuations.
Apple's strong cash flow, supply chain diversification, and brand loyalty mitigate these risks, making it a safer bet than its WACC suggests.
Paying 28x next-year EPS is fair for Apple, given its ecosystem strength, services growth, and robust balance sheet.
Kenneth Cheung
I don't often write rebuttal articles, but I feel compelled to do so today.
Recently, Seeking Alpha contributor Shubhm Mitessh Thakkar published the third "strong sell" rating on Apple (NASDAQ:AAPL) out of nearly 40 Seeking Alpha analyst articles released so far in 2025. While I disagree with his opinion that Apple is facing a potential 40% decline from current levels (more importantly, I deeply respect his opinion and those of other contributors on this platform), I sympathize with and often share his concerns.
Even so, I believe that Apple remains a compelling buy-and-hold stock for investors that are interested in compounding gains over a multi-year period, even at the current share price of $231 that is not too far from the all-time highs.
AAPL: the bear case
Rather than regurgitating Mr. Thakkar's bearish arguments in detail, I invite the reader to check out his well-reasoned article in full. But for the benefit of the "TL;DR crowd", I list below the main topics that I intend to briefly tackle in this article, one at a time:
iPhone 16 and Apple Intelligence not well-received: Apple's new iPhone has not been a big hit, with total iPhone sales having dropped by an estimated 4% YOY in calendar Q4. Also, few consumers seem thrilled by Apple Intelligence.
The "China problem": competition seems to have intensified in the region, particularly against domestic vendors Huawei and Vivo, while Apple seems quite a bit exposed to the US-China trade war risk.
Longer upgrade cycles: consumers seem to be hanging on to their phones for longer, putting pressure on demand for new iPhones.
Rich valuations: a deep dive into intrinsic valuation analysis suggests that Apple's equity should be worth $144 per share rather than $231, suggesting a downside potential of roughly 40%.
On the iPhone 16 and AI
Every iPhone cycle is plagued by intense skepticism. In 2017, many doubted that Apple could sell a phone for more than $1,000. In 2020, it was all about COVID-19 and the supply chain. The focus shifted to a combination of increased competition and an unfavorable macro landscape in 2022 and 2023, as interest rates skyrocketed alongside inflation. Last year was just more of the same, even if a different flavor of it.
From a trading perspective, in fact, there seems to be a "buy the hype" followed by a "sell the news" phenomenon that has been fairly consistent each year, making the third calendar quarter much better for investors than the fourth period -- the newest iteration of the iPhone is usually launched in September.
Stock Rover
I don't expect the iPhone 16 (or the iPhone 17, 18, etc.) to be any different. Importantly, and at a higher level, I think that trying to time entries and exits into and out of the stock based on the success of the current-year phone model is too speculative and rarely leads to a whole lot of alpha being generated.
On Apple Intelligence, a bearish take poses two problems, in my view. First, it is hard to tell if there is or there will ever be any direct connection or correlation between how well received by consumers that particular AI feature or product is and Apple's stock price movements. My gut feeling says "maybe", but only minimally at best.
Second, Apple Intelligence is still brand new, as are many other AI offerings in the market today. In fact, Apple Intelligence is barely reaching much of the world outside of the US (e.g., ChatGPT integration), with improvements to Siri expected to roll out only in April 2025.
So, except for a select few traders that might be trying to nail the timing of stock price movements driven by AI developments to the week or the month, I think that focusing on Apple Intelligence's shortfalls this early in the process might be a mistake.
Also, don't forget that Apple has a large pile of cash and extraordinary cash flow production abilities (in addition to eye-popping ROIC, suggesting that Apple can "make money out of thin air") to address business problems with lots of dry powder as these challenges arise.
On the China Problem
China is a recurring problem for Apple, and it has been for years. Once considered the "growth engine", the Greater China region has sputtered more than anything else in the past decade.
I wouldn't want to downplay the challenges and risks that Apple faces in the country, but two important qualifiers are worth highlighting. First, in what pertains to the supply side of the equation, Apple is substantially less dependent on the country today. Once upon a time, in 2020 (that is, shortly after the first trade war of 2018-2019 with China and the start of the COVID-19 crisis), about half of Apple's supplier count came from China. By the end of 2023, the number was a mere 33% (see chart below).
DM Martins Research, data from company reports
Apple's supply chain in Asia outside China, Japan, and Taiwan has more than doubled in size in only about three years, in an impressive supply chain diversification effort. Therefore, I see less of a China risk on the supply side, certainly relative to the pre-pandemic period.
On the demand side, Greater China continues to be the most volatile region in Apple's geographic portfolio. Quarterly revenue growth in the region has been in line with that of the total company and the Americas segment since 2019, at more than 7%. But the volatility in quarterly growth rates has been off the charts: 31% vs. only 14% for the total company (see chart below). This means that Greater China is highly unpredictable, which in turn plays a huge role in it probably not being a very important driver of the stock's value -- i.e., likely being all but irrelevant to the investment thesis.
DM Martins Research, data from company's IR page
On the Upgrade Cycle
Longer upgrade cycles are, in fact, a slight concern that I share with most bears. Worth noting, however, this issue has been at the forefront for many years, as Mr. Thakkar points out in his article, when he highlights that the average smartphone lifespan (consumer) has been increasing progressively from around 2.6 to nearly 3.0 years since 2013 at least.
Here, I think that Apple has done a good job making its phones more accessible to consumers by, primarily, (1) expanding the product portfolio to reach price points of as low as $429 for the iPhone SE, and (2) making payment plans widely available, which in turn has reduced Apple's dependence on carrier promos.
On Apple's Valuation
Valuation would probably be a good topic for an entire new 1,000-word article. The gist of it is that Apple has always traded at rich valuations, at least in the Tim Cook era, which has not prevented the stock from producing 185% cumulative returns in the past 5 years and gains of 630% in the past decade.
Regarding DCF, I used the valuation methodology in 2023 to "realistically" (that is, using assumptions that few would challenge as pie-in-the-sky) estimate Apple's equity value at $1.8 trillion. Since then, AAPL stock has climbed 32% in less than 18 months to be worth today about twice as much as my DCF's output.
Therefore, I would warn investors against trusting their spreadsheets blindly. In my view, the market perceives Apple to be a safer bet than the company's WACC (weighted average cost of capital) of over 10% might suggest, and I believe that this will continue to be the case for many years.
Considering (1) Apple's brand loyalty and the power of the ecosystem, (2) how compelling the services segment is, from a growth and cash flow predictability perspectives, and (3) the company's strong balance sheet and return metrics, I think that paying 28x next-year EPS is fair, even if not a once-in-a-lifetime bargain, for a stock like Apple.