Apple (AAPL -2.88%) has rallied investors this year, with its sock up 50% since Jan. 1. Wall Street grew particularly bullish as Apple neared a market cap of $3 trillion and then became the first company to achieve such a milestone in June.
The company's long history of consistent growth has made it one of the most reliable investment options. As a result, it's not surprising Warren Buffett's holding company, Berkshire Hathaway, dedicates 46% of its portfolio to the iPhone company.
However, before going all in on Apple, it's wise to be aware of the positives and negatives of its business. So, here is one green flag and one red flag for Apple in 2023.
Green flag: Massive potential in artificial intelligence
Since the launch of OpenAI's ChatGPT last November, all eyes have been on the artificial intelligence (AI) market. Companies like Microsoft and Nvidia have enjoyed monster rallies since Jan. 1. thanks to their potential in the industry. Meanwhile, Apple has largely stayed out of the hype. However, a recent report suggests the company is gearing up to make a promising push into the industry.
On July 19, Bloomberg reported Apple is quietly developing AI tools that could soon rival OpenAI's offerings. The company has created its own framework to build language models and has used this to develop an AI chatbot that engineers have nicknamed Apple GPT. The news boosted the company's stock by about 2% on Wednesday.
While Apple hasn't made the splash in AI that other companies have, it isn't a stranger to the market. The company is gradually bringing AI upgrades across its lineup of products.
In June, Apple debuted an update to the iPhone's autocorrect that uses language models similar to ChatGPT to learn how users text. Additionally, AirPod Pros now have an AI-enabled feature that automatically turns off noise cancellation when the wearer engages in conversation.
Apple's massive dominance in consumer tech could see it play a crucial role in AI and be a major driver in getting the technology into the hands of millions of shoppers.
Red flag: A slightly expensive option
While Apple's recent bull run has been lucrative for investors, it has also made its stock more expensive for newcomers.
The company's price-to-earnings ratio (P/E) has risen 54% year to date and sits at around 33. Meanwhile, its price-to-free-cash-flow (P/FCF) ratio is also on the high side at about 32. Both metrics are useful in determining the value of a stock, with a P/E of less than 20 usually signaling a bargain and a P/FCF below 10 indicating the same.
Data by YCharts
The good news is, as shown in the chart above, Apple's stock is still one of the cheaper options among the five biggest tech companies. Its P/E is lower than Amazon, Microsoft, and Meta Platforms, with only Alphabet offering slightly more value.
However, Apple stock's rise of 304% over the last five years has offered investors more growth than any of the other companies in the chart. Comparatively, the company with the second-highest growth is Microsoft, with its stock up 226%.
Apple's P/E and P/FCF may suggest its stock is an expensive option right now, but the company's history of consistent gains and growing potential in AI will likely boost its shares far higher over the next five to 10 years. The key with Apple -- and most stocks -- is to keep a long-term perspective, which can set the stage for a significant return on your investment.
Apple is at the forefront of multiple areas of tech and is quickly expanding. With the power of AI and the iPhone at its side, Apple will likely continue on its current growth trajectory, making its stock an attractive option in 2023.
