Apple Stock at Risk: Is AI the Last Lifeline?
$Apple(AAPL)$ is undoubtedly a big winner in the AI game. Wall Street has high hopes for the new iPhone 16, which will be Apple’s first model featuring AI capabilities. But is Apple’s stock truly set for the rise investors expect?
Is Apple Intelligence Overvalued?
Apple’s AI software, “Apple Intelligence,” integrates large language models into iOS, enhancing existing features and introducing new ones, including upgrades to Siri.
However, the beta version of Apple Intelligence is launching next month and will only be available to a limited number of customers initially, with additional features rolling out over the following months. In other words, Apple Intelligence will be a slow rollout rather than a sensational launch.
A June survey of current iPhone users revealed that 73% plan to upgrade mainly due to outdated or damaged devices, while only 18% cited new features as the reason. Early pre-order data shows that pre-orders for the iPhone 16 and iPhone 16 Plus increased by 10% and 48% compared to last year, but high-end versions like the Pro and Pro Max saw declines of 16% and 27%.
So far, it seems that Apple’s supercycle hasn’t materialized.
Stock Price Already Reflects AI Expectations
If the iPhone 16 doesn’t meet expectations, the stock could be in trouble.
Historical data shows that Apple’s growth has been “uneven”: supercycles push the stock to new heights, followed by stagnation. The last explosive growth phase occurred with the launch of the iPhone 12, the first 5G smartphone. Since then, Apple’s sales have plateaued, yet valuations have been driven up by expectations that AI will trigger another supercycle.
For a company with nearly $400 billion in annual revenue, increasing profits isn’t easy. While Apple has initiated a large stock buyback program, the profit growth from these buybacks may not be enough to support the stock’s current price-to-earnings ratio near 35. The company needs to break the $400 billion sales barrier.
Is Now the Time to Buy Apple Stock?
Investors should carefully consider two factors before buying:
If Apple’s annual revenue surpasses $400 billion and the iPhone 16 is successful, that’s fantastic! The problem is, the stock price may already reflect—or even overestimate—this growth expectation. Even if earnings per share double, Apple’s P/E ratio would still be higher than the pre-pandemic level of 17.
On the flip side, if Wall Street decides that Apple’s AI iPhone cycle isn’t impressive enough, the stock could plummet. Without profit growth, the only way for the P/E ratio to return to a more reasonable level would be through a significant drop in stock price.
While Apple remains one of the world’s strongest brands and companies, its current stock instability may leave investors dissatisfied with future performance.
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