There’s no denying that Apple (0.37%) has been a remarkable long-term success for its shareholders. Even those who invested in the company over the last ten years have seen impressive returns, with Apple surging over 800% (at the time of this writing), far outpacing the S&P 500’s 180% increase.
Recently, however, Apple shareholders have experienced a crisis of confidence. Many have watched as the company’s competitors and peers in the artificial intelligence (AI) sector have achieved significant gains, while Apple’s stock has lagged behind the broader market index.
Nevertheless, Apple is aiming to turn the tide. The tech giant has recently unveiled plans for a special event and product launch on September 9, which could potentially ignite a rally in its stock. Should investors consider buying Apple shares ahead of this highly anticipated event? Let’s delve into the evidence.
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A Confluence of Challenges
Before addressing the pivotal investment question, it’s vital to examine the factors that have shaken Apple investors’ confidence.
The most apparent issue has been Apple’s financial performance, which has been lackluster in recent years. For the nine months ending June 29, Apple’s revenue saw a meager growth of less than 1% compared to the previous year, with iPhone sales declining by 1%. The prior fiscal year was similarly tough, with revenue in 2023 dropping by 3%.
These results must be viewed against the backdrop of broader economic conditions. Inflation has soared to near 20-year highs, forcing consumers to make difficult decisions regarding everyday expenses. In such an economic climate, it’s not surprising that consumers might choose to hold onto their existing iPhones a bit longer rather than upgrading to the latest model.
Another factor weighing on Apple’s stock is the significant sale by longtime shareholder and proponent Warren Buffett. The renowned investor and CEO of Berkshire Hathaway has sold Apple shares for three consecutive quarters, offloading about 56% of his holdings. This move came despite his previous assertion that “It just happens to be a better business than any we own.” Buffett indicated that the sales were for tax-related reasons, but this did not prevent some investors from selling their shares.
These combined factors have exerted pressure on Apple’s stock, but that could soon change.
“It’s Glowtime”
This week, Apple announced the date for its upcoming major product launch, set for September 9 at 10:00 a.m. PT. The invitations sent out by the company carried the tagline, “It’s Glowtime.” Most industry analysts anticipate that Apple will unveil the next iteration of its flagship device, the iPhone 16, at this event.
The invitation features a stylized Apple logo intertwined with the icon for Siri, Apple’s digital assistant. This design has sparked speculation about what’s in store, with high expectations for a significant upgrade to Siri. Additionally, the company is likely to reveal details about Apple Intelligence, its venture into generative AI.
This event could well serve as the catalyst for Apple’s next upward trajectory.
An Apple Comeback?
I am not alone in my optimism regarding a strong rebound in Apple sales.
Daniel Loeb, CEO of the hedge fund Third Point, recently added a substantial Apple stake to his portfolio. The billionaire acquired nearly 2 million shares of Apple stock in the second quarter, amounting to a stake valued at approximately $443 million (as of this writing) and constituting nearly 5% of his portfolio. Loeb dismissed concerns that Apple might “be an AI loser,” suggesting that Apple Intelligence would drive “meaningful demand” within the company’s existing customer base, leading to “a step-change improvement in Apple’s revenue and earnings over the next few years.”
Veteran tech analyst Dan Ives from Wedbush shares this bullish outlook. Due to recent economic challenges, Ives estimates that “roughly 300 million iPhones globally have not upgraded in over 4 years.” He further predicts that “Apple could sell north of 240 million iPhones in fiscal 2025,” as part of an “AI-driven upgrade cycle” fueled by pent-up demand. With an average selling price exceeding $900, this would translate to over $220 billion in iPhone sales alone, marking a roughly 10% increase compared to this year’s projections. Supporting his forecast, Ives has an outperform (buy) rating and a $285 price target, which implies a potential 25% gain for investors from Monday’s closing price.
Should Investors Buy Before September 9?
While I generally advise against making investment decisions based solely on specific dates, it’s crucial to consider the overall evidence when deciding whether to buy a stock—and Apple is no exception.
Apple holds the title of the world’s most popular smartphone, with its devices dominating the top seven best-selling smartphones in 2023, according to Counterpoint Research. The company boasts over 2 billion active devices worldwide, with an estimated 1.4 billion being iPhones.
The potential for strong iPhone sales is evident, along with the related sales of apps, services, and additional products. As the economic challenges of recent years begin to wane, consumers are likely to show more willingness to upgrade to the latest iPhone. Moreover, the new AI-driven features provide a compelling reason for consumers to make the switch.
Currently trading at a slight premium of 34 times earnings, Apple’s valuation is justified by its long-standing track record of growth. Furthermore, the combination of new iPhone features, a revamped Siri, and new AI-powered capabilities could be just the catalyst needed to kickstart Apple’s next major upgrade cycle and drive the stock higher.
All these factors suggest that Apple stock is a worthy investment.
