After a remarkable nearly $1 trillion increase in market value this year, Apple Inc. (NASDAQ:AAPL) faces a tougher path for similar gains in 2024. Seeking to reverse four consecutive quarters of declining revenue, the world’s most valuable publicly-traded company confronts uncertainties in China, where government agencies are tightening regulations on foreign-made devices. The intensifying competition from Huawei Technologies Co. and a potential US ban on Apple’s smartwatch business just days before Christmas add to the challenges.
Despite a 50% rally in the stock this year, driven by investor optimism in Apple’s ability to generate substantial profits regardless of economic conditions, the company finds itself in expensive territory. Priced at 29 times profits projected over the next year, nearly double its 10-year average valuation, Apple’s stock faces scrutiny.
Eric Clark, a portfolio manager at Accuvest Global Advisors, points out the biggest risk for mega-cap companies like Apple is the possibility of funds rotating to other names. Mega-caps with higher valuations, slower growth, and tougher year-on-year comparisons may see investors shifting funds to areas with potentially more upside for 2024, according to Clark, who has reduced his position in Apple and other major tech stocks.
While blue-chip tech stocks were favored earlier this year amid interest rate hikes by the Federal Reserve, the shift in sentiment, indicating that rates may have peaked as inflation cools, has led investors to explore riskier stocks, broadening the rally.
With stretched valuations, any future advance for Apple is likely contingent on accelerated profit growth. Wall Street anticipates modest revenue growth of 3.7% and profit expansion of 7.6% in fiscal 2024, based on analyst estimates compiled by Bloomberg.
The contrast between Apple’s ascent to a market value above $3 trillion and its restrained growth outlook has tempered analyst enthusiasm. Despite Wall Street’s overall bullish sentiment toward big tech, only 34 buy-equivalent recommendations have been given for Apple, in stark contrast to Amazon.com Inc.’s 67, Meta Platform Inc.’s 65, and Nvidia Corp.’s 59 bullish ratings.
However, some remain optimistic. Analyst Daniel Ives of Wedbush Securities envisions Apple reaching a $4 trillion market value by the end of next year, with a Street-high price target of $250, significantly surpassing the $199 expected by analysts on average. Ives acknowledges concerns about potential iPhone bans in China but deems them containable and notes that demand for Apple products in the region remains strong.
Even amid challenges, Accuvest’s Clark maintains his view that Apple’s iPhone is “the greatest consumer staple that’s ever been created,” justifying a “higher multiple” for the company.
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