Apple stock price has pulled back this year as concerns about its innovation, growth, and valuation continued. AAPL crashed to $220, about 15% below its highest level in 2024, bringing its market cap to about $3.36 trillion, making it the second biggest company in the world after NVIDIA. So, is Apple still a good blue-chip Magnificent 7 stock to buy?
Apple is a top overvalued Magnificent 7 stock
Apple’s $3.3 trillion market cap has made it one of the most overvalued technology companies in the Magnificent 7.
The company has a forward P/E ratio of 30.40, higher than other companies like Google and Microsoft. This multiple also higher than that of the S&P 500 index, which has a forward multiple of 21.
Apple is one of the top blue-chip companies in the world and deserves a premium valuation. However, realistically, this valuation has an issue because Apple is no longer a growing company as it used to be before.
Its annual revenue moved from $383 billion in 2023 to over $391 billion in 2024, and analysts expect that its annual revenue will be $413 billion this year and $446 billion in 2025. While these numbers are big, they represent a 5.6% and 8% annual growth rate.
The most recent financial results showed that its fourth-quarter revenue rose by just 6% to $94.9 billion, while the diluted earnings per share (EPS) rose by 12% to $1.64.
Key challenges remain
The main challenge that Apple faces is that it relies mostly on the iPhone, which has been its cash cow for years. While the iPhone is the best phone today, most people are no longer updating their devices as they did before. To a large extent, the iPhone 15 Pro Max has no major differences with the 16 Pro Max.
Over time, Apple has introduced other products to complement its offerings, but there is a sense that none can match the iPhone’s success.
Apple Watch has been the most successful launches in the past few years as it has continued to make billions annually. The challenge, however, is that the update cycle has not been all that strong in the past few years.
Apple’s Vision Pro has not been all that successful as it has become a niche product and not a big cash generator for the firm.
Apple has also been left behind in the artificial intelligence craze. While its products have received AI features recently, experts doubt whether they are all that useful.
Meanwhile, there are signs that Apple’s services business is slowing as it faces regulatory challenges. Its services revenue rose from $22.3 billion in $24.9 billion in the fourth quarter of the year.
On the positive side, Apple has continued to reduce its outstanding shares and return funds to investors. Its outstanding shares have fallen from over 17.30 billion in 2020 to 15.1 billion, which has helped to boost its earnings per share.
However, share buybacks and dividends alone are not enough for the company and its stock price in the future.
Read more: Aapl stock: Apple gets another rating downgrade as analyst sees 13% downside
Apple stock price forecast
The daily chart shows that the AAPL share price has been in a strong downtrend in the past few weeks. It dropped from a high of $260 on December 26 to $220, and is hovering at the 38.2% Fibonacci Retracement point.
The stock has also dropped below the 100-day and 50-day Weighted Moving Averages (WMA) and the lower side of the ascending channel. Also, the MACD and the Relative Strength Index (RSI) have continued falling.
Therefore, the Apple stock price will likely continue falling ahead of its earnings scheduled on January 30. Further weakness will push it to the 50% retracement at $211.
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