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For years, Apple (NASDAQ: AAPL) held a very strong investment case. So far in 2025 though, Apple stock has fallen 8%.
What has been going on – and could now be the time for investors to consider it?
Stepping back from the short term
There have been some short-term challenges for the tech giant. For example, the structure of its globalised supply chain has led investors to feel nervous about what unpredictable US tariff policy-making could mean for the company.
But I think short-term concerns are not the only driver behind the declining Apple stock price. I reckon the big question on many investors’ minds is: what are the long-term growth prospects for Apple?
Growth matters at the current valuation
On one hand that may sound like a silly question. After all, Apple more or less prints money. Last year’s net income came in at $94bn. While that represented a fall for the second year in a row, it is a huge sum. It means Apple made the equivalent of over $11 in net income for every man, woman and child on the planet!
But I think growth matters as well as income given the current valuation. Apple stock trades on a price-to-earnings ratio of 35. That strikes me as high for a company with limited growth prospects, even if it is highly profitable.
It may have a growth problem
So what do Apple’s growth prospects look like? Revenue rose last year, but still came in below where it had stood two years before.
By contrast, the most recent quarter saw year-on-year growth of 10%, which I regard as strong. But it remains to be seen how sustainable that is or whether it partly reflected retailers and customers bringing some sales forward in an effort to avoid possible tariff rule changes.
With a limited product portfolio and no big new launches of entirely new products for years, the question remains: where might Apple’s growth come from?
Some reasons to be optimistic
One answer to that question could be services revenues. The company now has an all-time high installed base of active devices, in all of its product categories and geographic segments. That provides significant potential for it to grow its revenue streams from services in coming years. Indeed, services revenue hit an all-time high in the most recent quarter.
It is also possible to drive revenue growth without any major new product launches. For decades, Apple’s strategy of offering a limited range of products combined with occasional refreshes has helped keep the company sharply focused.
That strategy has worked well and may continue to do so.
No rush to invest
That said, the world is changing around Apple. Lower-cost Chinese rivals are upping their game when it comes both to functionality and design, threatening to eat into Apple’s competitive advantage.
Meanwhile, a weak economy in key markets could hurt demand for pricy phones and other high-end hardware like laptops.
The current Apple stock valuation does not look attractive to me given the risks involved and the uneven growth trajectory we have seen from Apple over the past couple of years.
So I will watch and wait in the hope of a more attractive valuation, rather than investing now.
