Apple’s (AAPL) stock has declined 12.7% over the past six months, even as the broader market—reflected by the SPDR S&P 500 ETF (SPY)—has gained 6% during the same period. Investor sentiment has cooled amid concerns that iPhone sales may have reached a saturation point, limiting near-term growth potential.
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Additionally, Apple’s perceived lag in advancing its artificial intelligence (AI) strategy, especially compared to peers such as Alphabet (GOOGL) and Nvidia (NVDA), has further eroded market confidence.
A closer look at Apple reveals several challenges that warrant a cautious stance, including headwinds in China, softening iPhone demand, a slower pace in the AI race, and potential tariff risks—all compounded by a premium valuation. That said, Apple’s deeply integrated ecosystem provides resilience and flexibility to navigate these pressures. Given the balance of risks and strengths, I maintain a Neutral outlook on the stock.
China’s Rocky Road Leads to Apple’s Sales Dip
It’s becoming increasingly apparent that Apple has a “China problem.” For context, 17.12% of Apple’s net sales come from China, as shown by TipRanks data.
In its fiscal first quarter of 2025, Apple’s revenue in China plummeted 13% year-over-year from $18.25 billion to $16.37 billion. While Apple saw some stabilization in its fiscal second quarter, it’s clear that its growth in China, a key market, has decelerated.
Apple is facing stiff competition in China from HUAWEI Global, which markets its own smartphones. Moreover, there is potential for broader geopolitical risks. The Chinese Communist Party (CCP) has a history of interfering with free markets and a preference for China-based products, especially tech. The “Made in China 2025” campaign is a prime example.
The iPhone Dilemma of Peak Penetration
The broader concern extends beyond China—it’s the weakening demand for Apple’s flagship product, the iPhone. For the six months ending March 29, 2025, iPhone sales have remained essentially flat. The prevailing view is that, while the iPhone remains a significant revenue driver, it has entered a more mature phase of its growth cycle.
This intensifies the pressure on Apple to deliver its next breakthrough innovation—a challenge the company has yet to fully meet. Take the Vision Pro, for example: though positioned as a transformative product, it remains a niche offering with limited mainstream traction. As TipRanks data shows, AAPL’s iPhone sales are still growing, with fears of market saturation starting to rumble among analysts.
Like many U.S.-based companies, Apple faces growing pressure from trade tensions due to its heavy reliance on Chinese manufacturing. With over 80% of its production tied to China, the company is exposed to considerable operational and geopolitical risk.
Recently, Apple disclosed that tariffs are expected to increase its costs by $900 million in the fiscal third quarter alone—a direct impact on its bottom line. Unless there is meaningful progress in U.S.-China relations, this may be just the beginning of ongoing cost pressures.
Apple Falls Behind Its AI Peers
Lastly, Apple’s AI narrative has yet to capture the market’s enthusiasm. While the company is reportedly focused on enhancing Siri to offer a more personalized experience, progress has been slower than expected. Apple attributes the delay to its emphasis on quality and user experience; however, in the eyes of the market, speed is a priority.
Meanwhile, companies like Nvidia (NVDA) and Microsoft (MSFT) have already showcased significant AI-driven monetization at scale. Regardless of the rationale, Apple appears to be lagging behind its peers in delivering impactful, consumer-facing AI innovations.
Apple Relies on Services and Ecosystem Strength
Despite the fears, AAPL’s outlook is far from negative. While growth has decelerated in China, there are renewed hopes, as evidenced by its May 2025 rebound that was inspired by aggressive discounts on iPhone 16 models.
Moreover, Apple’s Services segment is generating record revenues. In its fiscal second quarter, Services reached an all-time high of $26.6 billion (up 12% year-over-year). Moreover, its gross margin improved to 75% from 72.8%. This segment offers higher margins and is less vulnerable to economic cycles compared to Apple’s hardware business. In addition, the company continues to enhance and expand its ecosystem through ongoing innovation, such as the introduction of CarPlay Ultra and regular iPhone updates that offer new features.
Premium Price, Decelerating Growth: Valuation Concerns
Despite AAPL’s recent challenges, its valuation remains elevated. The stock currently trades at a price-to-earnings (P/E) ratio of 31.4—roughly a 10% premium to the broader IT sector—despite its year-over-year revenue growth of 4.91% trailing the sector median of 6.43%. This disconnect suggests that investors continue to price in high expectations for Apple, expectations that have yet to be fully realized.
Is Apple a Buy, Sell, or Hold?
On Wall Street, AAPL carries a Moderate Buy consensus rating based on 15 Buy, 10 Hold, and 3 Sell ratings over the past three months. AAPL’s average stock price target of $226.36 implies ~6.5% upside potential over the next 12 months.
Last week, JP Morgan analyst Samik Chatterjee lowered AAPL’s price target from $240 to $230, but maintained his Buy rating. The analyst expressed caution over Apple’s iPhone 17 demand due to macroeconomic uncertainty. Meanwhile, he has higher expectations for the iPhone 18 series, highlighting the “launch of a foldable smartphone as well as further progress to artificial intelligence features.”
On the other side of the aisle, Barclays’ analyst Tim Long has issued a Sell rating on AAPL with a price target of $173. Despite the stock’s recent underperformance, he believes iPhones are now “ex-growth” and noted the company’s Services segment being “very concentrated and at risk.”
Apple’s Premium Valuation Meets Pressing Challenges
In conclusion, Wall Street’s view on Apple remains divided—and with good reason. The stock has underperformed relative to peers like Microsoft and Nvidia, while the company contends with several ongoing challenges, including slowing momentum in China, a maturing iPhone product cycle, and a lag in AI adoption.
That said, it would be premature to count Apple out. The company continues to grow its high-margin Services segment, maintains an unmatched base of loyal users, and enjoys exceptional financial strength. While its AI progress may appear slower than that of its competitors, a breakthrough in this area could unlock significant long-term growth, likely the key rationale behind its premium valuation. In short, while skepticism is warranted, there’s no immediate cause for alarm.