Consumer electronics giant Apple (AAPL 0.38%) recently unveiled the iPhone 16 at its annual Fall product event. It's become somewhat of a holiday for loyal customers who have come to love Apple's brand and device ecosystem. Over two billion people use active iOS devices, from phones to tablets, computers, and watches.
The stock is also an all-time great that has made long-term shareholders into millionaires on its way to becoming a multitrillion-dollar behemoth.
However, Apple's latest iPhone could face the most pressure it has in a long time. Artificial intelligence (AI) is changing modern life, and the world expects Apple to deliver on high expectations after unveiling several AI features at a developer event earlier this year. Apple stock continues to trade near its all-time highs; should investors buy, sell, or hold it today?
Here is what you need to know.
NASDAQ: AAPL
Key Data Points
The iPhone 16 is Apple's first swing at AI
New iPhones arrive annually, but not every year delivers game-changing upgrades that make everyone go out and buy new phones. Apple's last colossal step forward came in 2020 when it launched its first 5G iPhone. Annual sales soared to nearly $400 billion but have plateaued since then:
AAPL Revenue (TTM) data by YCharts.
Apple packaged its AI features into a technology called Apple Intelligence, which requires enough computing power that only iPhone 15 Pro, Pro Max, and iPhone 16 models can run it. The hope is that Apple's leap into the AI era will spur a new growth cycle for the company that can finally boost annual sales past where they've stalled out for the past several years.
The stakes are high
Apple's stalling revenue growth is simple: People don't upgrade their phones as often as they once did. According to Verizon's CEO, their average customer only upgrades every three years. There are two primary reasons for this. For one, smartphones have gotten increasingly expensive. Want the new iPhone? It costs as much (or more) as a personal computer.
Secondly, smartphones have matured. A decade ago, each year's model brought notable improvements. Today, customers usually get incrementally better cameras and processors. Giant leaps forward, such as 5G or AI capabilities, are rare now. It's become hard to justify spending that money yearly, especially while consumers are pushing back on high prices across the economy.
Apple needs a home run with the iPhone 16. Despite Apple's revenue flatlining, the stock's price and valuation have crept higher in anticipation of AI-driven growth:
AAPL Revenue (TTM) data by YCharts.
The stock's price-to-earnings ratio has doubled to 34. Without notable sales growth, analysts have continually lowered their growth expectations. This isn't sustainable; Apple's growth will pick up to justify the higher valuation, or the stock price will come down to match Apple's lower performance. How it breaks will probably depend greatly on how the iPhone 16 sells.
Should investors buy, sell, or hold the stock?
Even the best companies can be poor investments when their price doesn't make sense. Unfortunately, Apple's stock price is acting like the iPhone 16 is already a home run. Apple could grow its earnings by 50%, and the stock would still trade above its average P/E ratio from the past decade. Famous investor Warren Buffett has dramatically trimmed Berkshire Hathaway's stake in the company. However, Apple represented a massive portion of his company's portfolio, so selling some makes sense for diversification reasons alone.
The bottom line? Investors should do what they feel comfortable with. Some may want to sell to realize profits, while others believe in holding blue chip companies like Apple through the ups and downs. Ultimately, nobody knows what share prices will do in the future. For all anyone knows, Apple stock could trade flat for years until earnings grow enough that the valuation makes more sense.
One thing seems clear: The evidence points to a situation where there is far more downside risk in Apple than upside potential at these prices. This risk-to-reward dynamic is not something investors should buy into, so Apple is probably not a great investment today.
