Apple (AAPL 1.27%) is one of the most successful companies in American history. Since the company came public in 1980, its stock has delivered a whopping 187,580% return. An investment of just $1,000 back at its IPO would be worth more than $1.8 million today.

Along with its investors, consumers have also reaped the benefits of Apple's success. The company's iPhone, for example, helped boost their productivity, connect them with their friends and families, and place an endless stream of information at their fingertips.

With the start of 2024, though, some Wall Street analysts have soured on Apple stock. According to Benzinga, the stock received three downgrades from analyst firms so far (compared to just one upgrade). On top of that, one major investment bank lowered its price target.

Should you heed this new pessimism, or continue to buy Apple stock?

Apple's iPhone 15 is paving the way for AI on-device

Most people who have owned a Mac will tell you it's one of the highest-quality personal computers on the market. However, Apple's iPhone smartphone is responsible for most of the company's value creation since it launched in 2007. There are 2.2 billion active iPhones around the world today, and the device also led to the development of multibillion-dollar product lines like the Watch and AirPods.

The latest iPhone 15 Pro lineup also features the Apple-designed A17 Pro chip, which is a 3-nanometer processor considered to be the fastest in the smartphone industry. It paves the way for improvements to Apple's existing artificial intelligence (AI) software like the Siri voice assistant and autocorrect keyboard function.

Most power-hungry AI workloads -- like OpenAI's ChatGPT chatbot -- rely on external data centers to process requests, because existing computers and devices simply don't have enough juice to deliver results quickly. But that's all changing, and the A17 Pro is a step in the right direction. See, Apple is reportedly working on its own large language models (LLMs) in-house, which could become the foundation for a chatbot designed specifically for its devices.

Imagine a ChatGPT-style tool embedded in every iPhone by default. It could curate text messages, create image and video content, manage your email inbox, and even organize your calendar. Plus, a native chatbot would be incredibly secure because it wouldn't have to send private information away to a data center to process requests. Security has always been a major focus for Apple.

Slowing iPhone sales growth has long been a concern for many analysts on Wall Street because the smartphone market is saturated. Apple now mostly relies on existing customers upgrading, and the high-quality nature of the iPhone means those upgrades are happening at a much slower pace.

New, faster AI-enabled chips could accelerate the upgrade cycle in the future, especially as consumers become more accustomed to using AI in their everyday lives. Given the enormous installed base of the iPhone globally, any AI software released by Apple could quickly become the most widely adopted in the world.

An illuminated Apple logo inside an Apple store.

Image source: Getty Images.

Apple just snapped a lengthy streak of no revenue growth

Apple just reported its financial results for the fiscal 2024 first quarter (ended Dec. 30). Its total revenue rose 2.1% year over year, led by strong iPhone sales, which jumped 6%. The release of the iPhone 15 Pro in September was a key reason for the strong performance because it was the most significant upgrade in years thanks to its lightweight titanium frame and the A17 chip.

Apple's services revenue increased 11.3%, outpacing all other segments. It includes sales from subscription-based services like Apple Music, Apple News, and Apple TV+, as well as revenue from features like Apple Pay. Fast growth in the services segment is critical to the tech titan's bottom line because it's more profitable than the company's hardware business (software can be developed once and sold an unlimited number of times with limited additional cost).

A revenue uptick of 2.1% is modest, to say the least. But it reversed a streak of declining year-over-year revenue that spanned the previous four consecutive quarters.

Going forward, investors will also monitor sales of the Vision Pro mixed-reality headset, which is Apple's first foray into a new hardware platform since it launched the Watch in 2015. The company reportedly sold 200,000 units of the Vision Pro in the first 10 days, a remarkable result considering the $3,499 starting price. Wall Street firm Wedbush thinks Apple could sell 600,000 headsets in 2024, and 1 million in 2025.

The Vision Pro isn't necessarily moving the needle yet, because 600,000 units would translate into $2.1 billion in revenue, which represents just 0.5% of the $389.9 billion in total revenue analysts expect the company to generate in fiscal 2024.

Wall Street is souring on Apple stock in 2024

According to Benzinga, three Wall Street firms downgraded their ratings on Apple stock in January:

  • Barclays downgraded Apple to underweight (from equal weight), reducing its price target to $160 from $161.
  • Piper Sandler downgraded the stock to neutral (from overweight), lowering its price target to $205 from $220.
  • Redburn Atlantic downgraded Apple to neutral (from buy), issuing a price target of $200.

Barclays went a step further in February and reduced its price target again, to $158. Then, investment bank J.P. Morgan lowered its price target from $225 to $215, although it maintained its overweight rating.

By comparison, there has been just one upgrade of Apple stock this year. Bank of America lifted its rating to buy (from neutral) and raised its price target to $225 from $208.

Should investors heed Wall Street's pessimistic tone, or continue to buy Apple stock?

Valuation is one area of concern for investors. Based on Apple's $6.42 in trailing-12-month earnings per share, its stock trades at a price-to-earnings (P/E) ratio of 29.2. That's a slight discount to the 30.8 P/E of the Nasdaq-100, but Apple's sales growth is muted relative to some of the tech giants that make up that index.

Theoretically, that means the discount to the Nasdaq-100 is probably warranted. But waiting for Apple stock to get cheaper has been a fool's game, historically speaking. For example, Apple shares have traded at a P/E ratio as high as 35 and as low as 10 over the past decade, and its stock price has rocketed higher all the same.

Generally speaking, investors who sat on their hands waiting for a bargain in Apple stock since its IPO likely missed out on substantial gains in the process:

AAPL PE Ratio Chart

AAPL PE Ratio data by YCharts

With that said, the company's lackluster growth is a concern. How Apple transitions the iPhone to a fully AI-enabled device might be the key to unlocking its next phase of growth. The Vision Pro platform might also help boost its results once the technology becomes cheaper. Plus, while I wouldn't hang my hat on this in the near term, Apple is reportedly developing a car, which could become a significant source of revenue one day.

With all of that in mind, Wall Street's pessimism might be warranted in the very short term, but Apple does have enough potential growth drivers on the horizon to make its stock a long-term buy. Investors with a time horizon of five years or more will likely do well from here.