Apple (AAPL 0.25%) has surged back with gusto this year after macroeconomic headwinds dragged the shares down 27% in 2022. The stock is currently up a blistering 46% since Jan. 1.
Apple has rallied investors once again based on consistent demand for its products, a steadily growing services business, and recent expansion into a new category. Apple has massive potential in the future of virtual/augmented reality (VR/AR).
So, despite its position as the world's most valuable company, it still has plenty of room for growth. Here's why the stock is a buy now.
Long-term prospects in virtual and augmented reality
On June 5, Apple unveiled its highly anticipated VR/AR headset, the Vision Pro. The device confirmed years of speculation that the company had plans to enter the sector. The new headset has seemingly made leaps in innovation, with Apple essentially offering an entire desktop experience in virtual or augmented reality.
Equipped with the same chip as a MacBook Air, the Vision Pro can perform everyday tasks such as web browsing, word processing, video editing, and entertainment activities like streaming and gaming. Apple has set itself apart from popular headsets by Meta Platforms and Sony by offering all of its homegrown apps in the Vision Pro. Platforms like FaceTime, Messages, Safari, and more give Apple's headset a massive advantage over the competition.
However, the Vision Pro is a slight disappointment with its price: $3,500. The high cost has shut out many consumers who might have been open to adopting the developing technology.
As a result, it's crucial to keep a long-term perspective on Apple's VR/AR prospects. The company will likely bring down the price in future iterations of the headset, a tactic it has used with its other products. Devices like the iPad, Apple Watch, and even the iPhone have all seen lower-cost versions over the years, which were used to attract a broader range of consumers.
According to Fortune Business Insights, the VR market alone is projected to enjoy a compound annual growth rate of 45% through 2029. Apple's operating system and consumer brand loyalty could see the company soon dominate the high-growth industry, making its stock an attractive long-term option.
A booming services business
In addition to VR/AR prospects, Apple has strengthened its business over the years with a steady expansion into digital services. Platforms like Apple TV+, Music, Arcade, iCloud, News+, and Fitness+ allow the company to lean less on its product sales in the event of temporary economic headwinds.
Services has become Apple's second-highest earnings segment after the iPhone. In fiscal 2022, services reported 14% year-over-year revenue growth, double that of the iPhone. The digital business also has attractive profit margins, with the segment hitting a margin percentage of 71% last year, while the same figure for products came to 36%.
Moreover, Apple is gradually growing its position in the fintech industry. The company debuted its first credit card in 2019, hitting 6.7 million cardholders at the start of 2022. Then in May of this year, Apple took another step in the sector by launching a savings account, which saw nearly $1 billion in deposits in its first four days.
Apple has had immense success with its products over the years. But its services business strengthens the argument for its stock by diversifying its earnings and instilling stability in its shares.
Data by YCharts.
And as seen in the chart above, the company's price-to-earnings ratio (P/E) is the lowest among some of its biggest competitors. While a P/E of 30 isn't optimal, it still makes the stock a better value than that of tech giants like Amazon, Microsoft, and Meta. With all it has going for it, including great potential now in VR/AR and a promising services business, Apple stock is a no-brainer buy.
