Apple (AAPL) stock is on track to close 2024 on a strong note, trading at all-time highs and dispelling any skepticism about the company’s performance in the AI race compared to its Big Tech peers. As a long-term Apple bull, I believe Apple is more of a stock to own than to trade. However, given some of the challenges facing the company heading into 2025, I’m skeptical that now is the ideal time to buy. Therefore, I have a neutral recommendation on AAPL for the time being due to the three key reasons discussed below.
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In this article, I will outline the concerns I have regarding the investment thesis for 2025, although I remain optimistic about Apple’s long-term prospects.
1. Limited Impact of AI Features on iPhone Sales
The first point I raise as a cautionary note to Apple’s more optimistic outlook for the upcoming year is that the anticipated iPhone supercycle may take longer to materialize than expected.
Despite the market’s enthusiasm around Apple Intelligence, unveiled at the company’s latest WWDC (Worldwide Developers Conference), iPhone upgrades are expected to be slow. Major U.S. telecom carriers, such as AT&T (T), Verizon (VZ), and T-Mobile (TMUS), have tempered their expectations for a strong iPhone upgrade cycle. AT&T’s CEO, for example, referred to the iPhone 16 upgrade as a “graceful ramp-up” rather than a “big bang.” Both Verizon and T-Mobile also reported weaker hardware sales in their most recent earnings results, despite expectations that the iPhone 16 would drive significant demand.
However, Bernstein analyst Toni Sacconaghi believes that the bull case for the iPhone sales cycle may not become clear until Fiscal 2026, when Apple’s AI capabilities are expected to be much more advanced. Sacconaghi also suggests that Apple could achieve an annual EPS of $9 per share by Fiscal 2026 compared to the current consensus of $8.30. If the stock trades at its typical peak multiple of 33 times earnings, this could imply a price target of around $297.
Nevertheless, this doesn’t necessarily mean that Apple stock at $250 is a clear buy today. Given the potential for short-term pullbacks—especially if the iPhone cycle falls short of expectations or if there are uncertainties around product rollouts or other issues—investors may want to proceed with caution.
2. Analysts Revise AAPL’s Revenue Estimates Downwards
Another factor contributing to a more neutral outlook for Apple is the downward revisions in earnings estimates by Wall Street analysts, which significantly impact stock momentum.
Throughout this year, rumors surrounding the AI features of the iPhone 16 have led to frustration among analysts who were hoping to see Apple quickly capitalize on the AI trend. As a result, in the last three months, the average revenue estimate for Fiscal 2025 has been revised down by 1.5%, now projecting a 6% growth in revenue to $414.43 billion.
Several factors have contributed to this revision, including uncertainty around the sales performance of the AI-integrated iPhone 16, as well as setbacks such as Apple’s canceled plans for an electric vehicle and underwhelming sales of the Vision Pro headset.
Moreover, expectations for the short-term outlook, particularly for Fiscal Q1, have also been tempered. Over the past three months, analysts have reduced their top-line growth estimate by 3%, now forecasting growth of just 4%, with revenue expected to reach $124.41 billion.
3. Modest Growth and Overextended Valuation
The final point that makes me more skeptical about Apple concerns its growth prospects relative to its valuation. With Apple’s growth expectations falling short of market forecasts, coupled with a potentially stretched valuation, it may make more sense to trim gains and invest in other companies with more robust growth prospects for greater upside potential.
Over the last three quarters, Apple’s top-line growth has improved from -4% year-over-year to 6%. However, the company now trades at a price-to-sales multiple of 9.7x, which may be difficult to justify given its modest growth rate. While it’s reasonable for the world’s most valuable company to trade at a premium to its peers, the downward revisions to top-line estimates (as discussed in the previous section) make it increasingly challenging to support such a high multiple.
Looking at the bottom line, more stretched growth projections point to a compound annual growth rate (CAGR) of 9.5% over the next three to five years—second only to Tesla (TSLA) among the Magnificent 7 group. With Apple’s forward P/E ratio of 33.5x, this results in a PEG ratio of 3.5x, which is also higher than all its Magnificent 7 peers, excluding Tesla.
Is AAPL a Good Buy, According to Analysts?
Although the consensus on AAPL at TipRanks, based on Wall Street analysts, is predominantly bullish, the average price target doesn’t reflect significant optimism. Out of 30 analysts, 19 have a Buy rating, nine are Neutral, and two have a Sell recommendation. The average AAPL stock price target is $242.60, implying a potential downside of 3.4%.
Conclusion
Apple has been a market favorite throughout 2024, supported by its strong, top-tier business fundamentals. However, with market analysis and consensus indicating that 2025 will be a transitional year for Apple’s AI strategy, the outlook is weakening.
As a result, I’m rating AAPL as a Hold. In a market where rapid growth has been the key focus, leaving investors accustomed to it, I believe 2025 could pose challenges for Apple—particularly as the stock nears all-time highs with valuation multiples at a significant premium, suggesting potential for short-term corrections.
