Apple‘s (NASDAQ: AAPL) stock price has shot up 14,760% in the past 20 years thanks to the budding popularity of its hardware devices and software solutions that have won over consumers across the globe. Even in the past five years, investors have been rewarded with a 150% gain (as of June 4).
Apple is a behemoth today, with a market cap of $3 trillion. But the stock trades 22% off its peak, which might present a potential buying opportunity. Where will shares in this dominant consumer electronics enterprise be in five years?
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Image source: Apple.
Is it the beginning of the end for the iPhone?
The iPhone might be the most successful product of all time. It was released for the first time in 2007, and now it’s on its 16th upgrade cycle. In the fiscal 2025 second quarter (ended March 29), this single product generated $47 billion in revenue for Apple, accounting for 49% of the total. The issue, though, is that this sales figure was up only 2% year over year.
From a consumer’s perspective, it makes sense to wait longer between upgrades simply because the newer features aren’t as revolutionary as they were before. It’s probably not worth spending a four-figure sum for minor tweaks to the camera, for instance.
Maybe by 2030, a new device will be created that changes how people interact with technology and get things done. It was announced recently that OpenAI will acquire the design firm io from Jony Ive, former Chief Design Officer at Apple, for $6.5 billion. The goal is to create a totally new product that is built specifically for artificial intelligence (AI).
For what it’s worth, I’m not ready to claim that the iPhone is dead. After all, it raked in more revenue in a three-month span than most companies do in an entire year. But the slowdown highlights potential challenges for the company as we look ahead. One is that perhaps Apple Intelligence is behind the curve, as evidenced by its inability to drive more iPhone 16 purchases.
The critics have called out Apple’s failure to create the next game-changing hardware device that can push the financial needle. Apple was reportedly working on an electric car for a decade. In the U.S. alone, 17.7 million passenger vehicles were sold on a seasonally adjusted annual basis in April, so this market is certainly big enough for this business to focus on. However, Apple shut down this project last year.
It’s a good idea to take it easy on Apple. Products that have been launched after the iPhone have been ridiculously successful by any measure. For example, the Apple Watch has a 22% global market share. And it is estimated that AirPods brought in $18 billion in revenue in fiscal 2023. It’s just extremely difficult to push strong growth when you generated $400 billion in companywide sales in the past four fiscal quarters.
Will Apple beat the market?
The action investors take ultimately comes down to what they’re trying to achieve. For many, the goal is to beat the market over the long term. Had you owned Apple in the past, this is precisely what has happened.
But if we look to the next five years, I’m not confident this stock can outperform the broader indexes. Lower growth prospects and a price-to-earnings (P/E) ratio of 31.6 are key headwinds.
To be fair, this is a competitively advantaged business. It still possesses one of the world’s most powerful brands. It produces insane amounts of net income and free cash flow, a lot of which is returned to shareholders in the form of dividends and buybacks.
This means that Apple should at least remain on your radar. If the valuation drops to a P/E of 25 or below, then the situation is more interesting. It’s time to consider buying the stock at that point. Until then, be patient for the right opportunity.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
