Apple (AAPL +1.18%) stock has surged 40% higher across 2023's trading. The tech giant also has a market capitalization of roughly $2.84 trillion, and ranks as the world's largest company.
There's no doubt that Apple is an industry-leading player in technology hardware and software, but is the stock still a smart buy at today's prices? Read on to see competing bull and bear cases for the stock presented by two Motley Fool contributors.
Image source: Apple.
Bull: Apple is arguably the most innovative tech company
Parkev Tatevosian: My bull case on Apple stock centers on its decades of history designing, creating, and selling innovative tech hardware that people have come to appreciate. Indeed, it is this capability of innovating that is likely to make Apple shareholders wealthier over the coming years.
The iPhone, iPad, Apple Watch, and AirPods are a few of the tech items you see daily, even if you don't own one of these products yourself. Sales of the aforementioned products have boosted Apple's revenue from $171 billion in 2013 to $394 billion in 2022. Apple has cleverly built a family of products that complement each other. An Apple Watch is more useful if you have an iPhone, and vice versa. This characteristic makes it more likely that consumers will stick to Apple's ecosystem when any items need upgrading.
What makes Apple an attractive investment is that it has accomplished those feats profitably. From 2013 to 2022, Apple's operating income increased from $49 billion to $119 billion. Overall, Apple has demonstrated it can repeatedly deliver innovative technologies to customers while simultaneously expanding the business's profits. Fortunately for investors, they can buy this company at a fair valuation.
AAPL PE Ratio (Forward 1y) data by YCharts
Apple is trading at a forward price-to-earnings ratio of roughly 26, which is a fair price considering the growth in revenue and profits mentioned earlier. It can be tempting to look for bargains in the stock market, but paying a reasonable price for an excellent business is also a good strategy to build wealth in the long run.
Bear: Great companies aren't always great stocks
Keith Noonan: Before diving into potential bearish scenarios for Apple stock, I should clarify that I think the stock stands a good chance of beating the market over the long term. As Parkev outlined above, the company has built an impressive ecosystem of products and services -- and it's an absolute monster of a profit-generating machine.
But while Apple has certainly served up some big innovations in the past, its recent hardware and software releases have been largely iterative. When it comes to the iPhone hardware that generates a huge portion of the company's overall sales and profits, the tech giant's annual hardware refreshes have largely come down to marginal improvements for camera technology and a few other bells and whistles in recent years.
NASDAQ: AAPL
Key Data Points
Delivering relatively small technological improvements hasn't stopped the iPhone from serving up very impressive sales because Apple has an incredibly loyal customer base. The company arguably has the world's most valuable brand, and it's built a lifestyle around its products. But with the possible exception of its AirPods, Apple hasn't exactly delivered surprising product wins in recent years.
While the company is readying its augmented reality glasses and reportedly working on a self-driving smart car and other projects, it remains to be seen whether its new product offerings will wind up being successful. And notably, the company hasn't had much to show when it comes to artificial intelligence (AI).
Apple's massive user base gives it some inherent foundational strength in the AI space, but I think it would be hard to argue that the company has stronger footing than Microsoft based on what we've seen so far. AI is poised to be an absolute game changer, and there's a risk that Apple's overall position in tech will weaken if the company doesn't knock it out of the park with its own initiatives.
There's no doubt that Apple is a great company that deserves somewhat of a valuation premium. But the business is coming off four consecutive quarters of sales declines. Even with its many successes and strengths, Apple still has a lot of proving to do. If new product and service initiatives can't drive stronger growth, the stock could struggle or stagnate.
Should investors buy Apple stock?
If you're looking for blue-chip technology stocks with strong industry position and great brand strength, there's a lot to like about Apple. The company remains enormously profitable, and it has an impressive history of delivering successful products and services.
On the other hand, investors shouldn't dismiss the potential near-term downside risks or the possibility that the stock could deliver weaker-than-expected long-term performance. Apple's previous successes don't guarantee that it will score big wins in new categories, and it's possible the tech giant will face some disruptive pressures amid AI trends or see some of its other growth bets fall short.
For most investors, taking a buy-and-hold approach to Apple still looks like a sensible move. But it's also a good idea to study and weigh bearish scenarios before going all in on the stock.
