The largest company in the world by market cap is Apple (AAPL -0.07%). It has commanding power over the major indexes, too, making up 6.58% of the S&P 500 and 12.97% of the Nasdaq-100.

Apple is currently underperforming the S&P 500 in 2022, as it is down 20% this year versus the S&P 500's 16%. However, it has helped save the Nasdaq-100 from even more pain, as that index is down 29% this year.

But will Apple continue to bolster the Nasdaq-100? Or will it run out of steam in 2023? Let's find out.

Will consumers stay strong enough to support Apple?

In the U.S., the latest Apple products are everywhere. But these products aren't cheap, which makes many investors wonder how Apple will fare during a recession. We shouldn't regard the COVID-19-induced recession as a useful precedent, because in that situation, many consumers needed to obtain the latest tech gadgets to stay connected to their classmates, coworkers, and friends. Because of this, you have to go back a bit further in time to find Apple's last challenge.

The last real test for Apple was the Great Recession of 2008 and 2009 when the iPhone 3 was current, and the business wasn't even close to what it is today.

It's unclear if the consumer is weakening right now. Black Friday spending reached a new high of $9.12 billion, indicating the consumer is stronger than ever. However, U.S. credit card debt has reached a new all-time high of $930 billion, showing people may be spending money they don't have.

So if the consumer is in a neutral state, will people buy the latest Apple tech? I think they still will, but with Apple's revenue growth slowing, the demand for Apple products may be decreasing.

Revenue growth is disappearing

For how strong a stock Apple has been, you might have expected better revenue growth numbers than it's posting.

Quarter Revenue Revenue Growth YOY
Q1 FY2022 $123,945 Billion 11.2%
Q2 FY2022 $97,278 Billion 8.6%
Q3 FY2022 $82,959 Billion 1.9%
Q4 FY2022 $90,146 Billion 8.1%

Source: Macrotrends. YOY = year over year. FY = fiscal year. Apple's fiscal year ended on September 24, 2022.

That's less than market-average growth, and rising operating expenses have harmed the company even more on the earnings side. In Q4, Apple's operating expenses were up 16% versus revenue growth of 8%, which caused its earnings per share to rise only 3% YOY.

One thing to consider is how hard it is to control expenses and grow revenue when you generate nearly $400 billion in annual revenue.

This might be one thing investors aren't considering, and future growth may be hard for Apple to come by simply because there aren't enough consumers to use its products. While international expansion is possible, the Android operating system already has a 72% market share worldwide. Plus, Apple's products aren't cheap, and many countries can't afford them.

Additionally, Apple's stock has a premium valuation that indicates it should be growing faster than it is.

AAPL PE Ratio Chart

AAPL PE Ratio data by YCharts

Much of this valuation optimism came from Apple's desire to transform its business into a service-based one, but with the services division growing revenue at a pace of only 5% (less than that of the company as a whole), this may be a pipe dream. With Apple's business growth trending to flat and the stock's premium valuation one of these will likely have to give.

Additionally, with the news that Apple will shift its chip production to the U.S. starting in 2024, Apple's components could see higher prices due to sourcing within the U.S., but it would gain better control over its supply chain.

Investors may have become too complacent about Apple's stock, as it has been one of the best-executing companies over the past decade. However, as growth slows and expenses rise, the stock may have trouble, especially with its premium valuation.

Is Apple stock a sell? I don't think so; its execution has spoken for itself. But I don't think it's a buy, either; its valuation will need to be reduced to a normal level, or the business must return to market-beating or even matching growth. As a result, I think Apple stock is a hold for 2023, as there are much better values out there.