Is It Too Late to Buy Apple Stock?

Apple (NASDAQ: AAPL) posted its latest earnings report on Aug. 1. For the third quarter of fiscal 2024, ended on June 29, the tech titan's revenue rose 5% year over year to $85.8 billion and exceeded analysts' estimates by $1.4 billion. Its earnings increased 11% to $1.40 per share and also cleared the consensus forecast by $0.06.

Apple's headline numbers were stable, but it's already rallied roughly 304% over the past five years and is trading about 12% below its all-time high. So is it too late to buy this blue-chip tech stock?

Image source: Apple.

Apple is recovering from its cyclical slowdown

In the first nine months of fiscal 2024, Apple generated 52% of its revenue from iPhone sales and 24% of its revenue from services -- which include its App Store, iCloud, and subscription-based platforms like Apple Music and Apple TV+. The remaining 24% was split between Macs, iPads, and wearables, home, and accessories segments. Here's how those five segments fared over the past three years.

Data source: Apple. The fiscal year (FY) ends in September. YOY = year over year.

Apple suffered a slowdown in fiscal 2023 for two reasons. First, iPhone sales dipped as the 5G upgrade cycle cooled off and Apple faced more aggressive competitors in China. Second, the market's demand for new desktops, notebooks, and tablets -- which had risen throughout the pandemic -- fizzled out in a tougher macro environment.

Apple grappled with the same headwinds throughout the first nine months of fiscal 2024, but the accelerating growth of its services segment offset most of that pressure. It expects that segment -- which exceeded a billion subscribers a year ago and increases the stickiness of the Apple ecosystem -- to keep growing at a similar rate in the fourth quarter.

Apple's iPhone sales actually grew year over year on a constant currency basis in the third quarter of fiscal 2024, yet that growth was offset by a strong dollar. But its upcoming launch of the AI-oriented iPhone 16, its expansion into India, and a weaker dollar amid declining interest rates could gradually stabilize that closely watched business.

Meanwhile, Apple's Mac sales stabilized, while iPad sales finally rose year over year again in the third quarter and ended a five-quarter streak of declining sales. That recovery was driven by the new iPad Air and iPad Pro models.

Apple's strengths are broadly offsetting its weaknesses, but its sales in the Greater China region -- its third-largest market -- still dropped 10% year over year in the first nine months of fiscal 2024 as it faced persistent macro, currency, and competitive headwinds. Apple's share of China's smartphone market also declined from 16% to 14% between the second quarters of 2023 and 2024, according to Canalys, as it fell from sixth to third place among the region's largest brands.

A lot of cash but not too many catalysts

Apple ended the third quarter of fiscal 2024 with $153 billion in cash and marketable securities, which gives it plenty of room to expand its ecosystem with more investments and acquisitions.

But its near-term catalysts are murky. The Vision Pro remains a pricey niche gadget that won't reduce Apple's dependence on the iPhone anytime soon. The company's new generative AI tools might lock existing users into its services, but they probably won't meaningfully boost its near-term revenue or pull more consumers away from Android devices.

Apple also faces unpredictable regulatory headwinds. It faces a Department of Justice antitrust lawsuit in the U.S. that accuses it of leveraging its "walled garden" of devices and services to build a monopoly, as well as antitrust probes in Europe that challenge its prioritization of first-party services and high App Store fees. All of those legal challenges could throttle the long-term expansion of Apple's services segment.

On the bright side, Apple is returning a lot of its cash to investors via buybacks and dividends. In the first nine months of fiscal 2024, it bought back $69.9 billion in shares and paid out $11.4 billion in dividends. However, its low forward yield of 0.5% probably won't impress too many investors when short-term CDs are still paying 5% yields.

Stable growth at a premium valuation

For fiscal 2024, analysts expect Apple's revenue and earnings to grow 8% and 16%, respectively, as it laps its cyclical slowdown. For fiscal 2025, they expect its revenue and earnings to rise 8% and 11%, respectively. Those growth rates are steady, but they're not all that impressive for a stock that trades at 30 times forward earnings.

Therefore, Apple still commands a premium valuation because it's considered a safe haven stock in a wobbly market and has a few AI irons in the fire. It's not too late to buy Apple stock as a long-term investment, but investors shouldn't expect it to generate any big gains until it overcomes its regulatory challenges and rolls out some new products and services.

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Leo Sun has positions in Apple. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.