Stocks To Sell

Overpriced and Underperforming: The Case Against Apple Stock in 2024

The iPhone-maker Apple has demonstrated uneven performance in 2024. At one point in April, the company’s share price had dipped more than 14% for the year. Fortunately, Apple stock has started to recover. Long-term holders shouldn’t be surprised, considering the recovery coincided with Apple’s WWDC.

Apple’s relatively new partnership with ChatGPT creator OpenAI did not go unnoticed either.However, despite a bump in share price performance, if you’re a retail investor, there are several reasons why Apple is not worth the investment anymore.

Revenue Outlook Anemic

Apple’s revenue growth has looked anemic for some years now, yet investors have largely ignored this fact due to the iPhone-maker’s lush cash position and high margin products.

Still, if Apple is to maintain its impeccable margins and generous dividend, growth will eventually have to be a part of that conversation. In calendar year 2022, Apple increased revenue by nearly 8% year-over-year, a compressed growth rate when compared to the prior year’s 33% tailwind.

Even worse, in 2023, sales contracted year-over-year for the first time since 2019. Intense competition and product saturation in the handset market and general consumer disinterest for yearly (and oftentimes insignificant) iterations on smartphones, have created severe headwinds for smartphone sellers.

Competition in China, one of Apple’s key markets, has also become intensified due to Huawei’s resurgence. Huawei has absorbed market share not just from Apple but other Chinese OEMs. Apple has even had to resort to major discounts to entice customers.

Overall, the consumer electronics market will take time to recover but competition will become fiercer, which leaves little room for Apple to improve sales growth.

Investments AI appear as playing “catch up”

The Worldwide Developers Conference earlier this month took up headlines. Apple revealed new software features and tools for iPhones. The company’s new AI platform dubbed “Apple Intelligence” was a major highlight.

According to Bloomberg, the platform “will help summarize text, create original images and retrieve the most relevant data when users need it.” Most notably, a partnership with OpenAI will fully integrate ChatGPT into Siri with no extra costs on users.

However, it’s important to highlight that Apple had to engage third parties to develop an advanced AI chatbot rather than build one in-house. Both Meta Platforms (NASDAQ:META) and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) have been able to successfully develop their own generative AI chatbots.

Apple was even in talks with Meta to integrate its Llama chatbot into iOS, though discussions eventually crumbled.

Not to mention, Apple Intelligence will not be supporting languages other than English until next year. Ultimately, this leaves a feeling of a half-baked solution that was rushed out to latch on to the AI craze and hype.

Valuation and Apple Stock

The context in the sections above lead us to our discussion on valuation. Apple boasts a hefty $3.2 trillion market capitalization, which makes the company the second most valuable company in the world.

However, the Apple stock valuation is floating around 30.3x forward earnings. This is more than Alphabet, for example, which trades at 23.3x forward earnings, and Meta, which trades at 24.5x forward earnings. What investors need to ask themselves is, why is there a valuation premium?

Apple’s sales contracted in 2023 and have continued to do so in the first quarter of the current year. On the other hand, a software firm like Alphabet has experienced sales and margin growth, particularly in its Google Cloud business.

That is all to say, Apple trades at a premium relative to other tech giants, and it has become increasingly difficult to justify why.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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