Apple inventory (NASDAQ: AAPL) has remained largely flat over the previous month, underperforming the Nasdaq-100, which gained about 4% in the identical interval. The corporate not too long ago launched its iPhone 16 collection, and early indicators counsel weaker-than-expected demand. As an example, Morgan Stanley estimates that the typical lead time for iPhone 16 orders is round 15.2 days, in comparison with 25.7 days for the iPhone 15 and 18 days for the iPhone 14 collection inside the first 11 days after Apple began taking orders. However ought to buyers be involved? We don’t suppose so.
It’s essential to notice that the shorter lead occasions may very well be attributed to improved provide chain situations relatively than weak demand. In contrast to the final two years, when Apple confronted provide constraints as a result of post-Covid semiconductor shortages, provide has doubtless caught up. This might imply Apple has merely ramped up manufacturing to satisfy preliminary demand extra effectively. The iPhone 16 lineup, whereas stable, gives comparatively incremental enhancements over final yr’s fashions—primarily digicam and processor upgrades. The Professional fashions include barely bigger screens, however the actual game-changer for this improve cycle lies within the upcoming Apple Intelligence software program updates. These options, which embody enhancements to Siri, new writing help instruments, and AI-powered picture era, are anticipated to roll out step by step over the subsequent few quarters. Many shoppers could also be holding off on shopping for till these options are totally obtainable, probably driving an uptick in gross sales later within the cycle. The Apple intelligence options may ultimately drive an improve cycle. Though primarily a software program replace, these AI capabilities shall be unique to the iPhone 16 and 16 Professional fashions. The one exception is final yr’s iPhone 15 Professional, which may even obtain the replace. This restricted backward compatibility is more likely to create an incentive for customers of older iPhones to think about upgrading. One other issue that would work in Apple’s favor is the advance in U.S. wi-fi service offers for the iPhone 16 Professional. Commerce-in credit for the Professional fashions are larger in comparison with final yr, which may drive extra clients towards these premium gadgets. On condition that the Professional fashions carry larger margins, this might increase Apple’s profitability in the long run.
The rise in AAPL inventory over the past 3-year interval has been removed from constant, with annual returns being significantly extra unstable than the S&P 500. Returns for the inventory have been 35% in 2021, -27% in 2022, and 49% in 2023. In distinction, the Trefis High Quality (HQ) Portfolio, with a set of 30 shares, is significantly much less unstable. And it has outperformed the S&P 500 annually over the identical interval. Why is that? As a bunch, HQ Portfolio shares offered higher returns with much less danger versus the benchmark index; much less of a roller-coaster journey as evident in HQ Portfolio performance metrics. Given the present unsure macroeconomic surroundings round fee cuts and a number of wars, may AAPL face the same state of affairs because it did in 2022 and underperform the S&P over the subsequent 12 months – or will it see a robust bounce?
Apple’s revenues are anticipated to scale to document highs this yr, with gross sales projected to develop 9% to $390 billion, per consensus estimates, led by development in rising markets similar to India. Apple has additionally been astute at managing its prices. Apple additionally grew its gross margins to 46% for the primary 9 months of this fiscal yr, reaching close to all-time highs, up from about 44% within the year-ago interval, pushed by a extra favorable product combine, and better service gross sales. Apple’s stable steadiness sheet and providers enterprise money cow may make the corporate a comparatively secure haven in an unsure market. See our breakdown of Apple’s services business revenues. Now we have a $219 worth estimate for Apple inventory, which is about 3% under the present market worth. Nevertheless, Apple inventory trades at a P/E of about 34x at present, based mostly on FY’24 consensus earnings, which is barely excessive in our view, given the corporate’s combined development charges in recent times. See our evaluation on Apple Valuation: Is AAPL Inventory Costly Or Low cost? for an summary of what’s driving our worth estimate for Apple.
Whereas buyers have their fingers crossed for a tender touchdown by the U.S. financial system following fee cuts, how dangerous can issues get if there may be one other recession? Our dashboard How Low Can Shares Go Throughout A Market Crash captures how key shares fared throughout and after the final six market crashes.
| Returns | Sep 2024 MTD [1] |
2024 YTD [1] |
2017-24 Whole [2] |
| AAPL Return | -1% | 19% | 747% |
| S&P 500 Return | 1% | 20% | 155% |
| Trefis Strengthened Worth Portfolio | 1% | 14% | 761% |
[1] Returns as of 9/29/2024
[2] Cumulative whole returns because the finish of 2016
Make investments with Trefis Market-Beating Portfolios
See all Trefis Price Estimates
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
