When contemplating “AgeTech stocks,” you might automatically think of Apple (NASDAQ:AAPL) with its younger demographic first. However, Apple has also proven to be an ageless company, with impressive uptake across many demographics due to its versatility and popularity. For most investors, AAPL stock remains a core portfolio holding, given this stock’s massive weighting in most major indices. Thus, like it or not, most passive investors’ futures are already linked quite closely to Apple’s long-term performance.
This company’s cash cow is clearly its iPhone, which continues to make up the most sizable chunk of its revenue and earnings each year. But the company is also focused on other high-growth segments such as wearables and high-margin businesses such as services to boost its profitable growth profile over the long-term.
The question is whether Apple can continue to see stock price growth, given its impressive valuation of more than 31-times earnings. Let’s dive in.
The Bull Case
Apple’s success is not only made up by its hardware division. Rather, the company’s growing services segment including favorites like Apple Pay and iCloud is driving a significant amount of the company’s profitability. In the fiscal year of 2023, services revenue upped by 9%, making up 22% of the company’s sales. This segment doesn’t just provide world-class profitability with a 71% gross margin, but also promotes customer loyalty. It drives repeat purchases and preferences over other competitors.
In 2023, AAPL stock achieved a market cap of $3 trillion, but iPhone demand kept the company on their toes. Following a rally in December, Wedbush estimates a $4 trillion market cap could be possible in 2024, expecting growth and monetization to pick up. Apple’s shares increased by an abundant 52% over the past year, so the market appears to be taking such a view.
There’s also anticipation for Apple to announce its first year-over-year revenue and its most considerable earnings per share boost in more than two years in its upcoming Q1 2024 earnings report. Apple’s expected net income could reach a sizeable $32.56 billion in the February 1 report. This would translate to an 11% year-over-year improvement in the company’s earnings per share numbers, to $2.09. Revenue is predicted to rise just a little under 1%.
Thus, it’s all about the profit story for Apple right now.
The Bear Case
Apple continues to battle various challenges related to slowing revenue for core products and the saturation of the mobile phone market. Moreover, hesitation about the Chinese market, which makes up 19% of Apple’s revenue in fiscal 2023, worries investors.
The ruffling of feathers between the United States and China caused by the trade war during the Trump presidency continues to persist in the current administration. Amid these geopolitical tensions, Chinese consumers are increasingly opting for Huawei’s Mate 60 Pro, which offers an advanced chip, over the new iPhone.
In late October, Bloomberg reported that iPhone 15 sales fell behind its previous model due to the comeback of Huawei’s top device. Within the geopolitical landscape, Apple could potentially lose value, and some believe that Apple’s current valuation could result in a rather significant decline from its peak from here.
Buy with Caution
There are certainly reasons to be bearish on Apple in the near-term. The headwinds bears point out are prominent, and are the reason Apple has given up its mantle as the world’s most valuable company recently.
That said, this mega-cap consumer discretionary technology player is the best-in-class option in its space. With a strong and loyal customer base and a growing ecosystem of products Apple users rely on, the company’s steady cash flow growth and strong cash buffer do act as a relative buffer in these uncertain times.
Thus, I remain cautiously bullish on AAPL stock for the long-term. I think many in the market are likely to think the same way, with any sort of major dip bought, at least in the coming years. That said, I do think now is the time to buckle up for some turbulence, and it’s never a bad idea to diversify one’s portfolio.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
