Apple Down 7% Year to Date on iPhone Weakness: Buy or Hold the Stock?

Apple AAPL shares have declined 7.1% year to date, underperforming the broader Zacks Computer & Technology sector’s 1.5% growth. The company has been suffering from sluggish demand for iPhone in China amid increasing competition from the likes of Huawei and Xiaomi as well as lack of Apple Intelligence.Although iPhone sales decreased 0.8% year over year to $69.14 billion in first-quarter fiscal 2025, Apple saw better iPhone 16 sales in those regions where Apple Intelligence was available. iPhone’s active installed base grew to an all-time high and saw a record level of upgrades in the reported quarter. As per Kantar, iPhone was a top-selling model in the United States, Urban China, India, the U.K., France, Australia and Japan.Although Greater China sales decreased 11.1% year over year, Apple benefited from strong sales in a number of emerging markets, including India. In first-quarter fiscal 2025, the iPhone was the top-selling model in the country. The company saw double-digit growth in the installed base in the emerging markets.AAPL Stock’s Performance Image Source: Zacks Investment Research  Apple launched the first set of Apple Intelligence features in U.S. English for iPhone, iPad and Mac, and introduced more features and expanded to more countries in December. Apple Intelligence is now available in Australia, Canada, New Zealand, South Africa and the U.K. In April, Apple is set to launch the next level of language updates with Apple Intelligence, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, simplified Chinese, and localized English to Singapore and India. This is expected to boost iPhone upgrades and further increase in installed base. However, will this push the stock higher in 2025? Let’s dig deep to find out.Can Service Momentum Aid Apple’s Prospects?AAPL’s Services business is expected to drive top-line growth. It now has more than 1 billion paid subscribers across its Services portfolio, more than double what it had four years ago. The expanding content portfolio of Apple TV+, Apple Music and Apple Arcade, as well as the growing user base of Apple Pay, has helped drive subscriber growth.Although Apple’s business primarily runs around its flagship iPhone, the Services portfolio has emerged as the company’s strong growth driver. In the fiscal first quarter, Services revenues grew 14% year over year to $26.34 billion and accounted for 21.2% of sales.The Services business benefits from the growing demand for Apple TV+ content and the adoption of Apple Pay. It has expanded Tap to Pay on iPhone to more markets, including the U.A.E., Chile, Japan, Canada, Italy and Germany. Apple Pay is now available in countries like Egypt and Uruguay. The expanding content portfolio of Apple TV+ is noteworthy. Apple expects the March-end quarter’s (second-quarter fiscal 2025) revenues to grow low double digits on a year-over-year basis.AAPL Estimates Show Downward TrendThe Zacks Consensus Estimate for Apple’s second-quarter fiscal 2025 earnings has declined 4.2% to $1.61 per share over the past 30 days, indicating 5.23% growth from the figure reported in the year-ago quarter.Apple’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average earnings surprise being 4.39%. Apple Inc. Price and Consensus Apple Inc. price-consensus-chart | Apple Inc. Quote Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Apple Shares OvervaluedThe AAPL stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.Apple is trading at a premium with a forward 12-month P/E of 30.45X compared with the sector’s 26.88X and higher than the median of 29.85X, reflecting a stretched valuation.Price/Earnings (F12M) Image Source: Zacks Investment ResearchAAPL shares are now trading below the 50-day moving average, indicating a bearish trend.Apple Trades Below 50-day SMA Image Source: Zacks Investment Research AAPL Shares: Buy, Sell or Hold?Apple’s AI push with Apple Intelligence is noteworthy. However, it is still playing catch up with the likes of Microsoft MSFT, Alphabet GOOGL and Amazon AMZN.Although the Services business has emerged as AAPL’s new cash cow, with an expanding content portfolio for Apple TV+, we believe that Apple Intelligence will take some time to go mainstream.Hence, we believe that Apple’s near-term growth prospects do not justify a premium valuation.AAPL currently has a Zacks Rank #3 (Hold), suggesting that it may be wise to wait for a more favorable entry point in the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Apple Inc. (AAPL): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks