The Apple (NASDAQ:AAPL) share price has been on a remarkable run in 2024, with shares recently touching all-time highs around $237. This stellar performance has pushed Apple’s market capitalisation to a staggering $3.6trn, cementing its position as the world’s most valuable company. But with the stock price in rarefied air, many investors are wondering: is it too late to buy the shares, or is there still room to run?
A growth giant
The case for Apple remains compelling. The company continues to dominate the premium smartphone market with its iPhone line-up, which drives significant recurring revenue through its services ecosystem. Brand power and customer loyalty is pretty much unmatched, allowing it to command high margins across its product portfolio.
Looking ahead, many analysts are optimistic about Apple’s potential to capitalise on artificial intelligence trends. Loop Capital Markets analyst Ananda Baruah recently upgraded Apple to a ‘buy’ rating with a Street-high $300 price target, citing the company’s opportunity to become the “‘base camp’ of choice” for generative AI. Baruah draws parallels to how Apple leveraged the iPod to dominate digital music and the iPhone to capitalise on social media, suggesting AI could drive a new wave of growth.
Morgan Stanley‘s Erik Woodring echoed this optimism, naming Apple a top pick and raising his price target to $273. Woodring believes the upcoming Apple Intelligence AI features could spur a “mini upgrade cycle” across iPhones and iPads. With less than 25% of these products currently able to run these AI capabilities, there’s a substantial addressable market for upgrades.
Challenges remain
However, it isn’t without its difficulties. The company faces regulatory scrutiny in key markets like the EU, which could pressure its lucrative App Store model. Growth in China, a critical market, has also shown signs of slowing. Additionally, with a price-to-earnings (P/E) ratio of 35 times, the valuation is reasonably stretched compared to historical norms, leaving little room for execution missteps. If the market takes a turn, or if management slip up, there could be a long way down for investors after the recent rally.
A discounted cash flow (DCF) calculation showed that the shares are as much as 55% overvalued based on a fair value estimate. The company’s revenue growth projections of 4.9% annually are solid but not spectacular, potentially making it difficult to justify further multiple expansion.
Better opportunities elsewhere?
For investors taking a closer look at the Apple share price, it’s crucial to maintain perspective. While the company may seem expensive on traditional metrics, the financial strength, brand power, and potential to capitalise on AI trends could well justify a premium valuation. The company’s consistent share buybacks and growing dividend also provide shareholder value.
Ultimately, whether investing at all-time highs is ‘crazy’ depends. Long-term investors who believe in the firm’s ability to innovate may still find the shares attractive, even if short-term volatility is possible.
In the words of Warren Buffett, a long time Apple investor: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price“. The question I have is whether the Apple share price $230 still qualifies as that ‘fair price’. I’ll hold onto my long-term shares, but won’t be adding to my position for now.
This post was originally published on Motley Fool
