Should you buy Apple stock? Analysts and billionaires are sending mixed signals to investors.

Apple (AAPL -2.25%) shares have climbed 73% since the end of 2022 — outperforming S&P 500return of 48% in the same period. Investors are pricing in sales growth over the next year as Apple Intelligence rolls out, given that users will need to upgrade to one of the newest iPhone models to use these artificial intelligence (AI) features .

However, early signs point to relatively weaker demand for the new iPhones compared to last year. Several analysts closely watching delivery times for the new iPhone 16 see no signs of demand picking up.

Investors are also getting mixed signals about the stock from billionaire investors. of Warren Buffett Berkshire Hathaway sold half of his massive Apple position in the second quarter, but two other billionaires — Third Point’s Daniel Loeb and Viking Global’s Andreas Halvorsen — have been buying Apple stock recently.

With all of this in mind, it’s only natural to ask: What returns can an investor reasonably expect from Apple over the long term?

Artificial intelligence could push the iPhone to the top of the smartphone market

One factor causing slower sales for the iPhone 16 is that Apple Intelligence is not yet available. It’s scheduled to be released as a free software update for US customers this month, but won’t be available in other languages ​​until next year. And the initial features of Apple Intelligence will be limited compared to where the company will take them in the next few years.

Apple has spent years investing in AI, and management is optimistic about its potential to transform the user experience. Some of the new AI features are neat, including AI-generated images, audio transcriptions, and text summaries. These features could save people a lot of time, and this will almost certainly generate healthy demand for iPhones once Apple Intelligence is widely available.

Importantly, AI could help the iPhone extend its lead over its competitors. The iPhone topped the smartphone market for the first time in 2023, taking the throne from Samsung, according to IDC. However, it still has tremendous opportunity for more earnings, given that Apple only controlled 20% of all smartphone shipments last year. The new AI services and features that Apple could launch could significantly increase the appeal of the iPhone and allow the brand to dominate the smartphone market.

Apple’s R&D spending has nearly doubled over the past five years to more than $30 billion, and given its vast resources and cash hoard, it’s likely to continue to increase that spending in the years to come. The company is very profitable, generating $101 billion in profit on $385 billion in revenue last year.

AAPL data by YCharts. TTM = Later 12 months.

Apple is a solid investment

Apple has a great opportunity to increase its brand value with AI-optimized devices. Before deciding whether its stock is right for your portfolio, consider what kind of long-term returns you can realistically expect from it.

The smartphone market is no longer growing. It is expected to expand at an annual rate of just 3.5% through 2029. According to this projection, iPhone sales have barely grown annually for the past three years. Apple Intelligence may give a boost to sales, but the iPhone may still produce single-digit annual percentage sales growth for the next decade.

Analysts expect Apple to grow its earnings at an annual rate of 11% in the coming years. Wall Street estimates can change based on business trends, but something in the range of 10% to 15% annual earnings growth is a reasonable expectation. The reason is that AI-optimized devices will open the door for Apple to introduce new services that will increase profit margins. Over the past five years, Apple’s earnings have grown at a compounded rate of 17%, and most of that has been driven by its services segment.

The stock trades at a fair forward P/E of 27 relative to next year’s earnings estimate, so investors shouldn’t expect returns higher than the company’s underlying earnings growth. Think Apple as a blue chip stock that can deliver returns on par with S&P 500, and with the potential to marginally outperform the index over the long term.