Apple (AAPL 0.01%) made headlines recently when Microsoft leapfrogged over it as the world's most valuable company by market cap.
The iPhone company has had a challenging year, with macroeconomic headwinds curbing consumer spending and leading to a decline in its fiscal revenue. As a result, shares in Apple have fallen about 8% over the last month as Wall Street has grown concerned for the company's future.
However, there are plenty of reasons to remain bullish about Apple over the long term.
Data by YCharts.
This chart shows Apple's stock has significantly outperformed some of its biggest rivals over the last five years. While past performance isn't always indicative of what's to come, if the company delivered even half of that growth over the next five years, it would still surpass Alphabet, Amazon, and Meta's stock growth since 2019.
Apple remains a king in consumer tech, with growth catalysts in several other lucrative areas of tech. The company's dominance and significant cash reserves suggest it won't take tens of thousands of dollars to see a considerable return from an investment in its stock.
Here's why Apple is the ultimate growth stock to buy with $1,000 right now.
Light at the end of the tunnel
Recently, it seems like Apple can't catch a break. In fiscal 2023, the company posted a revenue dip of 3% year over year after declines in each of its product segments. Since the start of last year, the company has had to contend with reductions in consumer spending driven by spikes in inflation, increased restrictions on the use of the iPhone in China, and a patent dispute that forced it to pull its newest Apple Watch off of U.S. shelves.
Over the last two years, the tech industry has felt the pangs of consumer pullback. Worldwide smartphone shipments fell 11% in 2022 and continued to decline for most of last year. Meanwhile, PC shipments dipped 16% in 2022 and only started rising again in the fourth quarter of 2023, when they increased by 0.3%.
There appears to be light at the end of the tunnel, though, as smartphone shipments also began to rise in Q4 2023, increasing by 7% year over year.
Apple has been particularly vulnerable to market declines, as the majority of its revenue comes from product sales. However, that also means it has much to gain from a recovery in tech that will likely continue in 2024.
Moreover, despite recent declines, the company achieved nearly $100 billion in free cash flow last year. Current headwinds won't last forever, and Apple has the funds to invest heavily in its research and development and overcome potential hurdles.
Apple is decreasing its dependency on product sales
Apple heavily relies on product sales, with more than 70% of its revenue attributed to its iPhone, Mac, iPad, and wearables segments. However, the tech company is making moves to rectify this vulnerability by expanding into more digital sectors.
For instance, Apple's services segment has quickly become the most profitable part of its business. The segment includes income from the App Store and subscription-based services like Apple TV+, Music, and iCloud, with the business regularly hitting profit margins above 70%. Comparatively, products' profit margins hover around 36%.
Services posted revenue growth of 9% year over year in fiscal 2023, outperforming all other segments. The digital business is on track to eventually surpass the iPhone as the highest-earning division, which would make Apple's stock less volatile in the event of supply-chain issues or poor sales.
Additionally, Apple is sinking billions into artificial intelligence (AI), a market projected to expand at a compound annual growth rate of 37% through 2030. The company's research and development (R&D) spending rose by nearly $4 billion last year, with most of that going toward its AI expansion.
Data by YCharts.
This chart shows the company dedicated about 8% of its revenue to R&D. It's unclear what Apple's AI roadmap looks like for the next decade. However, it's promising to note that the last time it was higher, Apple was gearing up to release the first iPhone and expand its iPod business. Whatever the company is cooking up now could mean big things for Apple over the next decade.
One of the cheapest options in "Big Tech"
Data by YCharts.
Apple is a slightly expensive option with a price-to-earnings ratio (P/E) of 30. Yet compared to other stocks in the "Magnificent Seven" of tech, the company looks like a bargain. It has the lowest P/E among these companies, except for Alphabet.
I wouldn't bet against Apple's long-term future, considering its improving market and secular tailwinds from digital services and AI. An investment of $1,000 would buy about five shares of the company at its current price, so now's an excellent time to invest in this attractive growth stock.
