Apple's impending release of the iPhone has boosted the corporate's stock price on the promise of artificial intelligence. If history is any guide, those gains look like in danger, at the very least within the short term.
After an iPhone launches, the corporate's stock typically underperforms. This sets a cautious precedent when expectations are sky-high and Apple's stock price is kind of high relative to earnings, leaving little room for error.
Apple shares fell on 12 of the 17 iPhone launch days, in keeping with data compiled by Bloomberg. Additionally, September was the worst month for Apple shares up to now decade, falling a median of three.2%. This follows a broader trend, as each the SP 500 Index and the Dow Jones Industrial Average also posted their biggest percentage losses this month, in keeping with Stock Trader's Almanac.
Apple closed at $220.85 on Wednesday, down $1.92, or 0.86%.
If the newest iPhone fails to satisfy expectations when it comes to product features or sales, Apple could see a repeat of this valuation slump.
“It's easy to imagine a scenario where the market has built up all this excitement, but then you have to wait until we get concrete evidence that Apple's AI strategy is working,” said Denny Fish, who manages the $7 billion Janus Henderson Global Technology and Innovation Fund. “While there is a desire for AI capabilities, there is also room for skepticism and the price-to-earnings ratio is at the high end,” he added. “This is generally not a good time to buy.”
The company will hold a product announcement event on September 9. Bloomberg News recently reported that the newest phones will go on sale on September 20, however the AI features won't roll out until October via software updates.
Apple shares have risen 39 percent since their April low, adding greater than $900 billion to the corporate's market capitalization and contributing 22.6 percent to the Nasdaq 100 Index's total gains through the period — greater than another component, in keeping with Bloomberg data.
Apple's shares are valued at 31 times expected earnings, greater than 50 percent higher than the common price-earnings ratio over the past decade. Last month, the sales multiple reached 8.8, its highest since at the very least 2000.
Optimism concerning the company's AI strategy has been a key driver of the rally. Citi named Apple its top AI pick for 2025, and Daniel Loeb's Third Point LLC recently weighed in, writing in an investor letter that “AI-related demand could drive significant improvement in Apple's revenue and profit over the next few years.”
Growth has been in brief supply at Apple for a while. Revenue has fallen in five of the last seven quarters, and analysts forecast it should rise just 1.8% in fiscal 2024 before accelerating to 7.9% growth the next 12 months. In contrast, the general SP 500 technology sector is anticipated to see revenue growth of 10.9% in 2024 and 12.7% in 2025, in keeping with Bloomberg Intelligence.
Ironically, growth has been muted due to improvements to the iPhone. Customers are keeping their phones longer because cameras and batteries have gotten higher and costlier, so there's little reason to spend money on a brand new model.
Given the importance of the iPhone to Apple's product lineup – it accounted for nearly half of revenue last quarter – Wall Street expects its sophisticated AI features to encourage more customers to upgrade, accelerating growth.
The pool of users thinking about a brand new iPhone is potentially huge. According to Bloomberg Intelligence, over 40% of Apple's 800 million-plus smartphones are iPhone 12 or older, and one other 27% of users have an iPhone 13. Less than 10% of current users have phones that may be upgraded to the AI software.
However, a BI survey of U.S. smartphone users conducted in July found that artificial intelligence might not be enough to drive upgrades, which might jeopardize Apple's resurgence.
MoffettNathanson recently initiated coverage on the stock with a neutral rating, writing that the valuation “implies an iPhone upgrade cycle that is significantly larger than the 5G upgrade cycle of 2021/22.” The firm is skeptical that Apple can achieve this, especially given the rate of interest environment.
Despite these risks, there stays great optimism concerning the importance of AI to Apple's long-term growth, and the upgrade cycle is more likely to span several years.
Even if there’s a sell-off around the discharge of the brand new iPhone, the brand new iPhone will generate sales and profits over time, which could boost the stock price, says Eric Johnston, chief equity and macro strategist at Cantor Fitzgerald.
“The multiple is clearly high right now, but expensive names can stay expensive if the momentum is there,” he said. “I think that will be the case with Apple.”
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