Apple Stock: Buy, Sell or Hold?

Apple‘S (NASDAQ: AAPL) Shares recently hit an all-time high after it unveiled Apple Intelligence, its closely watched expansion into the generative artificial intelligence (AI) market. The extensive update adds AI-powered tools to write, edit, and summarize posts; search for photos and videos; and create images from circled text and typed directions. It will also integrate OpenAI’s ChatGPT into Siri and its other iOS, iPadOS and MacOS applications.

All these new features could tighten Apple’s grip on its customers and help the company keep pace with its big tech peers in the artificial intelligence (AI) race, but will they actually move the company’s course and make the shares rise even further?

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

The most important facts and figures

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

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

Apple’s iPhone sales fell as the 5G upgrade cycle ended and the country faced stiff macroeconomic and competitive pressures in China. Mac sales plummeted in a post-pandemic market, and iPad sales plummeted due to longer upgrade cycles and a lack of compelling new features in the latest models. The strong dollar has exacerbated this slowdown over the past two years.

The one consistent bright spot for Apple is its services sector, which served more than a billion paying subscribers at the end of the second quarter of fiscal 2024. That’s more than double the number of subscribers four years ago. It’s leaning heavily on expanding that ecosystem to attract more customers to its hardware devices.

Apple’s iPhone sales still fell in the first half of fiscal 2024, but most of that decline can be attributed to currency headwinds. Services growth is accelerating again and Mac sales are finally stabilizing, but iPad sales are still declining. Analysts expect Apple’s full-year revenue and profit to rise only 1% and 7%, respectively.

The story continues

The reasons to buy or hold Apple

The 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 that service revenue will continue to grow and offset other weaknesses.

Apple’s near-term revenue growth may seem anemic, but the company ended its last quarter with $162 billion in cash and equivalents, giving it plenty of room to make new investments, acquire smaller companies and return more shares to buy. It bought back 36% of its shares over the past decade, while its share price rose almost 850%. That fortress balance sheet makes it a good safe haven as long as interest rates remain high, even if it only yields a paltry 0.5% dividend yield.

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

The reasons to sell Apple

Apple is still growing, but the bears will argue that the company is maturing, that it faces unpredictable regulatory challenges and that its stock is overvalued. As the iPhone experiences longer upgrade cycles, Apple will feel more compelled to expand its services segment to offset that pressure. However, antitrust regulators in the US and Europe have been scrutinizing the services sector and could gradually lose their grip on developers and users.

If antitrust concerns slow the growth of Apple’s services segment before iPhone and Mac sales stabilize, the company could face a prolonged slowdown. If Apple responds to that slowdown by devaluing its business with bad investments or focusing too much on big buybacks, it could be revalued as a slower-growing tech giant like Apple. IBM.

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

What is the right move right now?

Apple faces some near-term challenges, but I don’t think this is the right time to sell the stock. It may also be too early to chase the stock after the last AI-driven rise, so I think the best move right now is to just hold it if you already own it.

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Leo Sun has positions at Apple. The Motley Fool holds and recommends positions in Apple. 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