Consumer electronics giant Apple (AAPL) faces a bunch of challenges that have weighed on Apple stock, including slowing iPhone sales and lack of a strategy for artificial intelligence. Still, many investors might be wondering if AAPL stock is a buy right now.
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Apple is playing catch-up with Big Tech rivals in AI, especially generative artificial intelligence. The company's AI initiative is going to be a costly undertaking and profits could take a near-term hit, according to Deepwater Asset Management.
The Cupertino, Calif.-based company plans to outline its AI strategy at its Worldwide Developers Conference, which starts June 10.
Bloomberg reported recently that Apple is close to a deal with ChatGPT creator OpenAI to use its generative AI technology on iPhones. Apple wants to integrate generative AI tech into its next iPhone operating system, iOS 18. Apple also has held talks with Alphabet's (GOOGL) Google to license its Gemini AI chatbot, Bloomberg said.
Apple's List Of Woes
In addition to lack of an AI strategy, other issues weighing on Apple stock include weak iPhone sales in China and legal problems over its App Store policies in Europe.
Plus, Apple faces an antitrust lawsuit by the U.S. Department of Justice. On March 21, the Justice Department sued Apple, accusing the company of violating antitrust laws with its restrictive iPhone and App Store policies. The lawsuit alleges that Apple's conduct makes it harder for Americans to switch smartphones, undermines innovation for apps, and imposes extraordinary costs on developers, businesses and consumers.
In a statement, Apple said the lawsuit is "wrong on the facts and the law" and vowed to "vigorously defend against it."
Wall Street analysts said the case will be a headline risk for Apple, which has a good chance of beating the rap. But the lawsuit could take three or four years to wind its way through the legal system.
Meanwhile, in late February, Apple decided to end development of an autonomous electric car after a decade of work. Apple reportedly spent more than $10 billion on the Apple car project before shutting it down to focus on AI.
Further, investment bank Needham called Apple's near-term growth outlook anemic to negative in a recent report.
Apple Opportunities For Growth
With the iPhone business maturing, investors are wondering what the next big growth driver will be for Apple stock.
Recently, two businesses have given Apple's sales and profits a boost: services and wearables.
In the March quarter, Apple's services revenue increased 14% year over year to a record high of $23.9 billion. At the same time, its hardware sales fell 10% to $66.9 billion.
Apple's services include the App Store, AppleCare, iCloud, Apple Pay, Apple Music, Apple TV+, Apple Arcade and other offerings.
On Oct. 25, Apple raised prices for multiple subscription services, including Apple TV+ and its Apple One bundles.
However, Apple is facing antitrust scrutiny in the U.S., Europe and Asia for its App Store policies, including its 30% commission fee. In Europe, Apple must comply with the recently enacted Digital Markets Act.
Apple Vision Pro Hits The Market
Meanwhile, Apple launched its first major new product in nine years on Feb. 2 with Apple Vision Pro. The spatial computing headset starts at $3,499 and is only available in the U.S. for now.
Apple Vision Pro is part of Apple's push into the wearables market, following the success of the Apple Watch and AirPods wireless earbuds.
The first weekend of availability for Apple Vision Pro saw consumers lined up at Apple retail stores to try out the new spatial computer. The computer goggles combine virtual and augmented reality.
The headset can play virtual-reality content and simulate augmented reality using video pass-through to show the real world. It is designed for entertainment, communications and productivity applications.
Apple unveiled Vision Pro in June 2023 at its Worldwide Developers Conference. But Apple stock fell 0.8% after the announcement. Critics on social media derided the new product as "nerd goggles."
While the technology is impressive, the high price will limit sales to well-heeled early adopters, analysts said. The killer app for the Vision Pro headset could be watching "spatial video."
Launching the Apple Vision Pro is one of the company's key challenges in 2024. Another is finding a strategy in the burgeoning market for artificial intelligence.
Apple Earnings Report Positive
Late on May 2, Apple narrowly beat Wall Street's estimates for its fiscal second quarter ended March 30. However, it also raised its quarterly dividend and stock buyback plan. Apple stock jumped 6% in the next trading session.
Apple earned $1.53 a share on sales of $90.8 billion in the March quarter. Analysts polled by FactSet had expected Apple earnings of $1.51 a share on sales of $90.4 billion. On a year-over-year basis, Apple earnings rose a fraction while sales fell 4%.
The company increased its dividend 4% to 25 cents a share. The Apple board authorized a $110 billion share repurchase plan.
In the June quarter, Apple expects its total revenue to rise by a low single-digit percentage rate. The company expects iPad sales to grow at a double-digit rate in the period, thanks to the introduction of new tablets on May 7.
In the March quarter, Apple's iPhone revenue sank 10.5% to $45.96 billion and accounted for 51% of the company's total sales in fiscal Q2.
Meanwhile, Apple's Mac computer sales rose 4% to $7.45 billion. However, iPad tablet sales dropped 17% to $5.56 billion.
Finally, revenue from Apple's wearables, home and accessories unit fell 10% to $7.91 billion.
The company's next earnings report is due in late July or early August. That could be a catalyst for Apple stock.
Apple Stock Falls Below $3 Trillion Value
In January 2022, Apple became the first company to reach a market value of $3 trillion. But it failed to stay above that level and didn't return to it until mid-2023.
Apple stock closed above a $3 trillion market cap for the first time on June 30. However, its current valuation is $2.91 trillion.
Microsoft (MSFT) has surpassed Apple's market value to become the world's largest company by market capitalization. Microsoft's current market cap is $3.12 trillion, boosted by its leading role in the artificial intelligence megatrend.
Apple's Storied History
Apple has been an American success story several times over. First, it ignited the personal computer revolution in the 1970s with the Apple II. Then it reinvented the PC in the 1980s with the Macintosh.
Co-founder Steve Jobs returned to run Apple in 1997 and oversaw a winning streak of innovations that included the iMac, iPod, iTunes, iPhone, iPad and the App Store.
The biggest driver of Apple's modern success is the iPhone. The game-changing smartphone, which debuted in 2007, sparked years of massive growth and created a loyal base of customers willing to buy Apple products and services.
Apple has an installed base of more than 2.2 billion devices in use today, including well over 1 billion iPhones.
Exclusive Apple Stock Ratings
AAPL stock has an IBD Relative Strength Rating of 47 out of 99. The Relative Strength Rating shows how a stock's price performance stacks up against all other stocks over the last 52 weeks.
Apple stock has an IBD Composite Rating of 71 out of 99, according to IBD Stock Checkup. IBD's Composite Rating combines five separate proprietary ratings of fundamental and technical performance into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
Apple is one of the Magnificent Seven stocks, which fueled the big stock market rally in 2023. But year to date through the May 17 close, Apple stock is down 1.4%.
Plus, Apple ranked No. 5 on IBD's 2022 100 Best ESG Companies list. ESG is short for environmental, social and governance.
AAPL Stock Technical Analysis
Last year, Apple stock climbed 48.2% to 192.53. But AAPL stock ended the regular session May 17 at 189.87.
On Dec. 14, Apple stock notched a record high of 199.62. Shares rose on a positive report from contract manufacturer Foxconn, which assembles Apple's iPhones.
In a positive sign, Apple stock is trading above its 50-day moving average line. Plus, its relative strength line has been rising lately as it outperforms the S&P 500 index.
Apple stock has an IBD Accumulation/Distribution Rating of B, indicating buying by institutional investors.
Is Apple Stock A Buy Right Now?
Apple stock is not a buy right now, but it soon could be. AAPL stock has formed a cup base with a buy point of 199.62, according to IBD MarketSurge charts.
Keep an eye on the overall stock market. If the market turns south, don't try to fight the general stock market direction. Check out IBD's Big Picture column for the current market direction.
To find the best stocks to buy and watch, check out IBD's Stock Lists page. More stock ideas can be found on IBD'sLeaderboard, MarketSurge and SwingTrader platforms.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitzfor more stories on consumer technology, software and semiconductor stocks.
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