Apple (NASDAQ:AAPL) certainly hasn’t been the market darling in 2024 that some other Magnificent Seven members have been. However, Apple isn’t undervalued and Apple stock isn’t currently a bargain. It’s wise to wait for a share-price pullback before buying Apple shares.
Also, even as Apple embeds its iPhones with Apple Intelligence artificial intelligence features, investors shouldn’t assume that Apple will be the king of the hill in every tech-niche market. Apple is still a powerful and innovative company, but valuation matters and an ill-timed investment could prove to be costly.
Apple Must Face Strong Competition
Sure, it’s big news that Apple will integrate OpenAI’s ChatGPT generative AI functionalities into iPhones. Does this automatically mean that Apple’s smartphones will crowd out the competition and generate better-than-expected revenue?
Not necessarily. For one thing, Apple’s iPhone sales could falter due to a slowdown in consumer spending. After all, even if inflation has come down since the summer of 2022, this is only disinflation, not deflation. Product prices are still going up, and consumers don’t always have the discretionary capital to upgrade their smartphones nowadays.
Just as importantly, Apple’s rivals won’t just sit back and let Apple dominate the industry unopposed.
Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google and Samsung are both expected to launch their own AI-feature-rich smartphones in the coming months. Yet, given Apple’s current valuation, it feels like the market hasn’t fully considered these challenges.
There’s No ‘Catch-Up’ Trade for Apple Stock Anymore
Lately, I’ve been hearing about an anticipated Apple stock “catch-up” rally for 2024’s second half. Does this really make sense, though?
Apple wasn’t the most favored Magnificent Seven member in the first half 2024, but the company wasn’t an outcast, either. Sure, there was a rough patch from January through April, but that’s not the full story.
Apple stock bottomed out at around $165 in April before embarking on an epic rally into the $220s. In fact, the stock reached multiple new all-time highs in June and then again in early July.
There’s no “catch-up” trade when the stock has already caught up and then some. Thus, I concur with Piper Sandler analyst Matt Farrell’s assessment of Apple. Amid a consumer-spending slowdown, Farrell is concerned that, quite possibly, “a lot of good news is already priced into the stock.”
Farrell also observed (via Barron’s) that Apple trades at “about 32 times the consensus estimate for earnings per share over the next 12 months.” This, Farrell added, “is approaching a 15-year peak of about 35 times.” This point should be duly noted, as the market may have already assigned a full value to Apple.
Take Profits on Apple Stock If You Have Any
Even with AI-feature-embedded smartphones, Apple will still have to deal with competition from ambitious rivals. Moreover, it seems that optimistic future assumptions have already been baked into the Apple share price.
This doesn’t mean that there’s something inherently wrong with Apple as a company. Rather, I’m only suggesting that current shareholders should consider taking profits on Apple stock. And if you’re eager to buy Apple shares today, think about letting the price drop 20% or 30% in order to get more favorable risk-to-reward prospects.
On the date of publication, David Moadel 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
