Why Apple’s (AAPL) Premium Valuation is Skating on Thin Ice

Apple, Inc. (AAPL), the leading smartphone maker by global market share, is currently valued at a forward P/E of 28, slightly above its five-year average of 27.4. This premium valuation may face obstacles in the future if growth continues to decelerate as it has since Fiscal 2021. The tech giant’s stock price has been sluggish over the past year, reflecting the unease.

Although Apple is a well-managed business with a strong liquidity position, the company is no longer the growth engine it once was. Acknowledging this new reality, Needham analyst Laura Martin downgraded Apple on June 4, citing that the tech giant’s growth profile and profit margins have fallen behind that of its peers.

Despite Apple’s balance-sheet strength and substantial brand equity, I am bearish on the prospects for Apple because of valuation concerns.

Apple’s Growth is Slowing

One of the primary reasons behind my bearish stance on Apple is its slowing growth. In Fiscal 2024 ended last September, Apple’s revenue grew only 2% YoY after registering a YoY decline of 2.8% in the previous year. This is in stark contrast to the 33% growth registered in Fiscal 2021. Some of the reasons behind the growth slowdown include the maturation of the 5G smartphone upgrade cycle and Apple’s lackluster progress in AI.

A granular breakdown of Apple’s recent financial performance reveals that most of its struggles are stemming from the lackluster growth of the iPhone segment. For instance, in the second quarter of Fiscal 2025, iPhone revenues grew just 1.9% YoY. Since iPhone sales still account for almost half of the company’s revenue, this meager growth has masked the success of the services segment, which grew nearly 12% in the last quarter.

Unfortunately, given the size of the iPhone segment, Apple is unlikely to see a significant turnaround in growth unless iPhone sales pick up, which is increasingly looking like a distant reality, as the company is experiencing market share losses in China, the world’s largest smartphone market.

The lack of innovation in the iPhone segment is one of the primary reasons behind the notable decline in sales growth in recent quarters. While many of its peers have focused on foldable smartphones and advanced AI features, Apple has failed to deliver on these fronts, leading to a decline in customer satisfaction. Although Apple still holds a dominant market share in the U.S., the company is losing ground in key markets, such as China, due to a perceived lack of innovation. This questions the sustainability of its premium valuation.

Apple is a Big Tech Laggard

At a time when Apple’s growth is slowing, I do not feel comfortable with the company’s premium valuation. Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), Amazon (AMZN), and Meta Platforms (META) are currently valued at forward P/E multiples of 31, 20, 35, and 20, respectively. This is in comparison to Apple’s forward P/E of around 28, which suggests the company may be reasonably valued. However, the issue becomes apparent when we examine the growth profiles of these large tech companies.

For instance, in the most recent fiscal quarter, Apple’s revenue grew by just 5% year-over-year, whereas Microsoft reported YoY revenue growth of 13.27%. For more context, Alphabet and Amazon reported year-over-year revenue growth of 12% and 9%, respectively, in their most recent quarter.

Meta, despite navigating a challenging macroeconomic environment, also reported 16% YoY growth in revenue in the most recent quarter. These findings suggest that Apple’s current valuation, which is closely in line with that of other big tech peers, is unjustifiable, as the company is growing at a significantly slower pace compared to its peers.

Apple Faces Many Other Headwinds

In addition to the slowdown in iPhone sales, Apple is facing several other headwinds that limit its growth potential. These challenges have also contributed to my bearish view of the company. For example, Apple is facing regulatory pressure both in the U.S. and Europe. In the U.S., the Department of Justice has filed a lawsuit alleging that Apple has monopolized the smartphone market through the strength of its ecosystem. In contrast, the EU is closely monitoring Apple’s activities as part of its efforts to implement the Digital Markets Act.

Another massive obstacle is the worsening trade relationship between the U.S. and China. Apple, despite showing a strong willingness to diversify its supply chain operations, still relies heavily on China. According to recent estimates, approximately 85% of iPhones are still assembled in China, highlighting the company’s dependence on the Country at a time when the U.S. government has threatened to impose heavy tariffs on China.

It would take years for Apple to entirely relocate production out of China to more favorable nations, such as India. Until this happens, earnings will likely take a significant hit from the new tariffs announced by the Trump administration.

Is Apple Stock a Good Buy?

On Wall Street, AAPL stock carries a Moderate Buy consensus rating based on 16 Buy, nine Hold, and four Sell ratings over the past three months. AAPL’s average stock price target of $226.94 implies approximately 15% upside potential over the next twelve months.

See more AAPL analyst ratings

Although Apple appears to be reasonably valued, I believe the risk-reward profile is skewed against long-term investors today, as the company is valued at earnings multiples comparable to those of other big tech giants that are growing at a much faster clip. Lackluster growth is likely to pull back valuation multiples in the future, potentially leading to a disappointing stock market performance.

Takeaway

Apple is a great business, but the company has found itself in a challenging position following questionable AI integration strategies and a period of underwhelming innovation. Geopolitical tensions have also exacerbated Apple’s challenges. Trading at premium valuation multiples, Apple’s current valuation does not accurately reflect these troubles. Based on these factors, I am bearish on the prospects for Apple stock.