The Apple Inc.’s (AAPL) car project's struggles have surfaced, failing to captivate the market. Without imminent groundbreaking releases, Wall Street is pivoting toward AAPL’s generative AI prospects. Shifting focus from the stagnant auto venture, employees are fortifying the company's AI arm.

The diversification strategy could fortify AAPL against market fluctuations, reducing dependence on a single product line. However, the lack of successful hardware innovations poses a challenge, potentially hindering the company's growth trajectory in the highly competitive tech landscape.

Despite holding the second-highest global market valuation, AAPL confronts uncertainties amidst smartphone market turbulence. Investors are seeking avenues beyond iPhones for sustained growth, spotlighting generative AI as a potential catalyst.

The strategic emphasis on AI could rejuvenate device and service sales, compensating for the absence of revolutionary hardware advancements. Nevertheless, reliance on software innovation alone may limit AAPL's ability to differentiate itself and maintain a competitive advantage.

On March 4, AAPL launched the new MacBook Air, which boasts a potent M3 CPU to upsurge portability and energy efficiency. When compared to the earlier M1 CPU, the M3 chip offers a 60% speed improvement and can outdo Intel devices by a factor of 13.

The enhanced Neural Engine further cedes the MacBook Air's position as the best choice for users seeking efficiency in AI-related tasks. This sort of hardware innovation showcases AAPL's continued investment technological innovation.

Shares of AAPL have declined 6% over the past month. However, it has seen a 13.4% increase over the past year, closing the last trading session at $173.00.

Looking ahead, AAPL's financial performance may be influenced by various factors, including:

Mixed Financials

For the fiscal 2024 first quarter that ended December 30, 2023, AAPL’s total net sales increased 2.1% year-over-year to $119.58 billion. Its gross margin grew 9% from the year-ago value to $54.86 billion. However, the company’s total operating expenses also rose 1.2% from the prior year’s period to $14.48 billion.

Sound Historical Growth

Over the past three years, AAPL’s revenue and EBITDA increased at a CAGR of 9.5% and 15.2%, respectively. During the period, its net income and EPS grew at respective CAGRs of 16.4% and 20.3%. Moreover, the company’s levered free cash flow rose at a CAGR of 9% over the same time frame.

Optimistic Analyst Estimates

The consensus revenue estimate of $388.20 billion for the fiscal year ending September 2024 reflects a 1.3% year-over-year increase. Likewise, the company's EPS for the ongoing year is expected to grow 7.1% from the previous year to $6.56. Moreover, the company topped the consensus EPS estimates in all four trailing quarters.

Robust Profitability

The stock’s trailing-12-month EBITDA margin and trailing-12-month net income margin of 33.73% and 26.16% are 266.7% and 863.4% higher than the industry averages of 9.20% and 2.72%, respectively. Moreover, the company’s trailing-12-month levered FCF margin of 22.44% is 148.8% higher than the 9.02% industry average.

Stretched Valuation

In terms of forward non-GAAP PEG, AAPL is trading at 2.77x, 41.2% higher than the industry average of 1.96x. Its forward EV/Sales and EV/EBITDA of 6.64x and 19.50x are 127.4% and 29.8% higher than the respective industry averages of 2.92x and 15.03x.  Furthermore, the stock’s forward Price/Book of 35.66x compares with the industry average of 4.36x.

POWR Ratings Exhibit Mixed Prospects

AAPL’s outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL demonstrates robust quality, maintaining an A grade owing to its commendable profitability metrics. However, its Stability rating is less favorable, marked by a C grade, primarily due to a 60-month beta of 1.29, surpassing the threshold of 1.

In terms of Momentum, AAPL presents challenges, reflected in a D grade. This is underscored by the stock trading below both its 50-day and 200-day moving averages, standing at $183.52 and $183.86, respectively.

AAPL is ranked #20 out of 37 within the A-rated Technology - Hardware industry. Click here to access AAPL’s Growth, Value, and Sentiment ratings.

Bottom Line

AAPL's recent challenges in its car project highlight the formidable hurdles in the market. Although diversification could safeguard AAPL against market volatility, the absence of groundbreaking hardware advancements poses inherent risks.

Conversely, the new MacBook Air's debut underscores the company's dedication to innovation. However, recent stock fluctuations and a lofty valuation signal prudence. Despite promising long-term potential, prevailing instability makes it wise to wait for a more opportune entry point in the stock.

How Does Apple Inc. (AAPL) Stack Up Against Its Peers?

While AAPL has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) rated stocks within the A-rated Technology - Hardware industry: Vtech Holdings Limited (VTKLY), Lantronix, Inc. (LTRX) and AstroNova, Inc. (ALOT). To explore more Technology - Hardware stocks, click here.

What To Do Next?

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AAPL shares rose $0.75 (+0.43%) in premarket trading Friday. Year-to-date, AAPL has declined -10.03%, versus a 8.34% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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