Obviously, no investor owns a crystal ball. But let's face it -- one of the keys to successful investing is figuring out what the future holds for a particular company.
That's easier to do with some companies than it is for others, of course. Take Apple (AAPL 2.48%) as an example. It's made the world's single-most-popular smartphone since unveiling the iPhone all the way back in 2007. Since then, the device has cultivated incredible loyalty to Apple's app-centric digital ecosystem. That's the big reason Apple stock has been so rewarding to loyal shareholders between then and now.
As the old adage goes, though, nothing lasts forever. Will the next 15 years be as exciting as the past 15 have been? Probably not.
The thing is, you won't have to wait the whole 15 years to see this. The company's already running into a headwind. As soon as three years from now, it should be clear that Apple's highest-growth days are in the rearview mirror.
Fewer products, more services
Don't misread the message. Apple is going to be fine. Indeed, it may well be an even bigger company by 2027 than the $2.6 trillion behemoth it is right now.
On the flip side, don't be short-sighted. Sales of the iPhone alone account for roughly half of Apple's top line, but neither unit sales nor iPhone revenue itself have surpassed 2020/2021's peak.
Data source(s): iPhone revenue from Apple Inc., iPhone unit deliveries from IDC. Revenue figures are in millions of dollars. Unit figures are in millions.
To this end, the company's overall top and bottom lines have been stagnant since then as well.
There has been one bright spot of late, however. That's Apple's services arm. This business has continued to grow as more and more iPhone owners purchase more and more apps and other digital content through Apple. This is now the company's second-biggest business as measured by revenue, and while its gross profits are roughly half those driven by sales of physical products, services are still clearly an important part of Apple's total net income.
Data source: Apple Inc. Figures are in millions.
The company is working on other profit centers in the meantime. Take artificial intelligence as an example. Although he's said little about AI, CEO Tim Cook has said he's looking forward to introducing something new on this front "later this year."
What does that mean? That's just it -- nobody really knows. It's not a stretch to suggest, however, that it's going to be something that readily competes with Google's Gemini AI assistant and Microsoft's use of ChatGPT. It certainly wouldn't be Apple's first foray into the arena. The company introduced onboard assistant Siri all the way back in 2011 before artificial intelligence was capable of making such tech a truly useful tool.
The shift is steering Apple into tougher challenges
This shift away from iPhones and toward digital services won't be an easy one for Apple or its shareholders, though, for a handful of reasons. A highly competitive AI-assistant market is one of them.
Microsoft is already using artificial intelligence technology as a draw to its Bing search engine, for instance, which obviously helps generate ad revenue. It's also helping private, paying users of ChatGPT technology to better monetize these AI-powered platforms. Ditto for Google's Gemini. It's just not clear how or even if these commercially minded features will be worth their cost in the increasingly competitive environment. The same applies to Apple's eventual entry into the space, which (given the underlying technology and consumer-facing business) is apt to be a more consumer-oriented than commercially oriented tool anyway.
And that's an important distinction to draw out. Businesses are willing to pay for ways to make their apps more powerful. But consumers themselves? Not so much.
There's also the not-so-small matter that consumers -- even loyal iPhone owners -- may not be interested in spending meaningfully more money on apps than they already are. Market research outfit Data.AI indicates that total consumer spending on (and in) apps was up a modest 3% last year, just barely reversing 2022's 2% (first-ever) decline in annual app spending. In a similar vein, last year's total number of app downloads rolled in at 257 billion, up less than 1% from 2022's tally. That's the lowest yearly growth rate yet, extending a long-standing streak of deceleration.
This doesn't mean Apple's services growth is set to slow as much; it may not slow it all. This bigger-picture slowdown ultimately suggests that the app business's future isn't likely to remain as red-hot as its recent past has been, however. That will make it tougher on Apple, even if it remains the top name in the revenue-bearing app game.
Apple stock is already showing weakness
Fine, but what does any of this mean for Apple stock?
Again, don't panic if you own it. Apple, at its worst, is still a better pick than plenty of other companies on their best days. The analyst community also believes Apple shares should be worth nearly $200 apiece a year from now, up more than 17% from their present price. Longer-term revenue and earnings forecasts also call for more growth after that, suggesting that shares could be worth even more than $200 further down the road.
Even so, even the bullish analysts recognize that Apple is entering a new, slower-moving era and are collectively calling for modest single-digit sales and profit progress through 2026.
Data source: StockAnalysis.com. Chart by author.
The bottom line is that this is the first time since shortly after the first iPhone launched 17 years ago that Apple has had to fight so fiercely for so little growth.
There's the rub: This isn't something investors are accustomed to seeing from Apple stock. That's the key reason the stock has underperformed since late 2021. And, since nothing looks like it's going to change anytime soon, don't be surprised to see Apple shares continue lagging for the next three years, either. It could struggle just to keep up with analysts' anemic targets. The only thing that might dramatically help is the launch of a game-changing product or service, like the iPhone, back in 2007. But there's nothing like that on the horizon.
Then there's the bigger takeaway here. This is the kind of holistic, top-down thinking and analysis you should be doing for any prospective long-term pick.
