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Apple (NASDAQ: AAPL) has grown to become one of the world's largest companies over the past several decades, changing the lives of countless investors in the process. Even a measly $1,000 invested in 2005 -- 25 years after the company went public -- would still have grown to over $117,000 today.
Today, Apple's brand is renowned worldwide, and more than 2 billion people use iPhones and other iOS devices. Now, the company is turning to its next chapter. It recently launched Apple Intelligence, its largest push yet into artificial intelligence (AI). Investors hope that AI will take the company and its stock to new heights. So, can buying the stock today set you up for life?
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Here are three things you need to know.
1. Apple's success is now working against it
It's no secret that Apple is a behemoth today. The company is worth $3.4 trillion, and its $110 billion share repurchase program, announced earlier this year, is the largest in U.S. history. Its customer base is massive, serving as a wonderful distribution network for selling subscription services and new products.
But at some point, a company grows large enough that its size starts working against it. Apple's $391 billion in trailing-12-month sales are staggering, but they're also up just 3.3% over the past three years. The Apple Intelligence-enabled iPhone 16 will hopefully spark growth, but management guided for just a low-single-digit revenue increase next quarter, which includes the holiday season. So far, it seems unlikely that the company will enjoy the surge of iPhone upgrades Wall Street had hoped for.
Sometimes, you raise the standard so much that it eventually becomes hard to keep it up. Unfortunately, the business in its current form, which still depends heavily on selling iPhones, might be pushing up against its ceiling.
2. The stock's valuation is an issue
Apple is such a universally respected company that the stock may always enjoy a premium valuation compared to most others. However, the market usually doesn't write blank checks. Without sufficient organic growth, it may start to reconsider Apple's valuation.
That could be a troubling situation, given where the stock is today. Shares currently trade at a forward price-to-earnings ratio (P/E) of 31. Meanwhile, analysts have gradually lowered their long-term growth estimates to about 9.5%.
That's a price/earnings-to-growth ratio (PEG) of 3.2, which is pretty elevated for even a high-quality company such as Apple. In other words, the stock is pretty expensive for the growth you will likely get in return. It doesn't mean it will crash, but it could eat into future investment returns because it may lag until Apple's earnings grow and catch up to the stock price.