Is Apple Stock a Buy Now?

Apply (AAPL -0.70%) has regained its title as the world’s largest company and is currently in second place Microsoft by about 11%. That’s a sizable upside, which may lead some investors to question whether Apple stock is a buy right now.

Let’s take a look, because the answer may surprise you.

Apple Intelligence must succeed

Apple’s business is not hard to understand. It mainly sells hardware such as phones, laptops and tablets. However, they also offer some subscription services.

While the subscription side of the business may be a smaller part, it’s really the only part that has worked recently. In the third quarter of fiscal 2024 (ended June 29), sales from the services division rose 14%. While Mac and iPad sales also increased in Q3, iPad sales fell significantly in Q2 and Q1. Additionally, all of its other divisions shrank in Q3, including its biggest segment: the iPhone.

It’s been a rough road for hardware sales in general over the past few years, but Apple investors are hoping that new technology could spur a slew of upgrades.

Apple recently announced its approach to artificial intelligence (AI): Apple Intelligence. This feature is scheduled for beta release this fall and is Apple’s integration of generative AI into its ecosystem. While it lags far behind its Android competition in this integration, it will likely still be a hit thanks to Apple’s loyal following.

Two factors are at play as to why it could improve the current state of Apple’s business. First of all, these features will only be available on the iPhone 15 Pro and Pro Max or the new models. This means that some cheaper models and all existing phones will be excluded from Apple Intelligence, which some estimate to be 90% of the iPhone user base. This could lead to a massive upgrade cycle when the iPhone 16 launches later this month, which would give Apple a much-needed sales boost.

Second, Apple is likely to play the subscription game here as well. Apple’s competitors are offering AI tools for free on their devices for a limited time. After a year, a subscription fee will likely follow, which may annoy the consumer, but will be a huge boost to Apple’s recurring revenue if it becomes a mandatory feature.

These two factors are why Apple has regained its title as the world’s largest company, but if this initiative fails, the stock could be in trouble.

A blind examination of Apple stock reveals overvaluation

If I were to present you with the following information about a stock, would you buy it?

Data source: YCharts. YOY = Year Over Year.

You’d probably think it’s an expensive stock for almost no earnings growth, but that’s where Apple trades. Now let’s compare three more companies.

Data source: YCharts. YOY = Year Over Year.

All of these seem like much more attractive investments because A and B are growing much faster and trade at a much lower price than Apple. Or, Company C is growing at a fast rate but is not much more expensive.

Company C is an easy guess: Nvidia. But A and B can be a bit more complicated: Company A is Meta platformsand company B is Alphabet.

These two are doing much better than Apple commercially, but they don’t have the pedigree that Apple stock has. So, does Apple deserve the premium? I would say no.

For Apple’s valuation to reach the same levels as Meta or Alphabet, its earnings would have to increase by about 50%. That’s a tall order even though Apple’s iPhone sales are growing and it’s likely to launch the Apple Intelligence subscription.

Apple holds a huge premium over its peers, but it doesn’t have much to show for it. As a result, I think there are far better buys in the market than Apple, and investors would be better off looking at one of its peers for an investment right now.