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Shares of Apple (AAPL) rallied to a new record high last Thursday and are up 50% this year, driven by optimism it will continue to churn out big profits regardless of the health of the economy. However, after reporting four consecutive quarters of declining revenue, fresh headwinds are making it harder for the company to repeat its record-setting pace.
Apple, the world’s most valuable publicly traded company, faces new challenges in 2024. In China, where Apple gets 20% of its revenue, government agencies are cracking down on the use of foreign-made devices. Also, competition from Huawei Technologies Co. is intensifying after it unveiled its new Mate 60 Pro smartphone. In addition, Apple’s smartwatch business faces a potential U.S. ban days before Christmas due to a patent dispute.
This year’s rally in Apple has boosted the stock’s valuation to frothy levels. Apple is priced at 29 times profits projected over the next year, nearly double its 10-year average valuation. With valuations stretched, any rally in Apple will likely be fueled by an acceleration in profits. Analysts anticipate revenue growth of +3.7% in fiscal 2024 and profit expansion of +7.6%. Accuvest Global Advisors, which has trimmed its position in Apple and some other megacap technology stocks, said, “The biggest risk for the business model of the megacap stocks right now is money rotating to other names” as their valuations become stretched.
Most investors have been sticking to investing in megacap technology stocks this year as the Federal Reserve raised interest rates. However, as expectations have risen that interest rate hikes are ending as inflation cools, investors are starting to put money into riskier assets as the stock market’s rally broadens. With Apple’s recent surge to a record high, many analysts have become cautious about the stock. Apple has only 34 buy-equivalent ratings from analysts, compared to 67 buy recommendations for Amazon.com, 65 for Meta Platforms, and 59 for Nvidia.
Not all analysts have cooled on Apple’s prospects. Wedbush Securities estimates Apple will be worth $4 trillion in market value by the end of next year and projects a 12-month price target of $250, well above the $199 expected by analysts on average. Also, Accuvest Global Advisors said the new challenges facing Apple don’t diminish its view that Apple’s iPhone is “the greatest consumer staple that’s ever been created” and, therefore, a “higher multiple is warranted.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
