Apple (NASDAQ:AAPL) stock has been treading water lately, concerning some investors that the company has lost its aura of innovation. Let’s analyze what has gone awry and how to profit from AAPL stock going forward.
Apple remains the world’s largest company, so when AAPL stock outperforms, this single-stock move has the potential to buoy the broader tech sector. However, it’s worth noting that competitors like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are diving into emerging tech like quantum computing and AI. Comparatively, Apple still relies heavily on iPhone, Mac, and other hardware sales to generate its growth.
Of course, Apple has diversified into services like iCloud, Apple TV, and Apple Music. But these all ultimately feed on hardware growth. A lack of innovation has become evident, as Apple slashes order forecasts for new products like the iPhone 15, iPad, MacBook Air, and more.
Apple’s Growth Engine Sputtering as Economy Slows
What’s missing with the investment narrative around AAPL stock is the spectacular growth story Apple has ridden for the past two decades. Expansion is unambiguously decelerating, although the post-COVID surge provided a temporary boost.
Currently, Apple is struggling to sustain pandemic-era sales levels. Meanwhile, it hasn’t invested heavily in futuristic technologies like quantum computing or AI for end users (barring Siri). Nor has it diversified meaningfully beyond hardware and affiliated services.
This makes Apple appear stagnant at present. Of course, Apple devices will continue to sell due to their quality and brand cachet. iPhones boast better batteries and optimization thanks to Apple’s proprietary iOS. MacBooks also retain their premium resale value.
Dangers Lurk for AAPL Stock if Hardware Sales Stall
Apple must maintain growth and continue expanding its ecosystem to see its share price grow. At some point, iPhone and Mac sales could hit a wall as markets saturate.
I do expect Apple’s growth to return when the economy rebounds. But until then, AAPL stock could tread water absent major new innovations.
On the bright side, services revenue expanded 9% year-over-year this past quarter when other segments declined. This recurring revenue stream will become even more vital over time.
But services are still indirectly tied to hardware sales. If iPhone and Mac volumes dip substantially, it becomes difficult for Apple to squeeze more services sales from a stagnant user base. We’ve seen most of its hardware miss sales forecasts in recent months, with Apple putting some of its orders on hold. Thus, this is definitely a problem that could become more significant.
Lack of Breakthroughs Means More of the Same for AAPL Stock
In summary, Apple lacks any imminent breakthrough technologies apart from incremental improvements to existing devices. More iPhones and MacBooks are likely coming without game-changing new products on the horizon.
That said, “more of the same” remains quite profitable for Apple. Consensus sees around 10% annual revenue growth over the next decade, with earnings expanding at a similar clip.
AAPL stock has surged nearly 28% over the past 10 years, even amidst its current stagnancy. With consistent low double-digit growth, I expect shares to appreciate 15-20% annually moving forward.
Declining hardware margins will be offset partially by high-margin Services revenue. Additionally, Apple could start paying dividends to support its premium valuation as growth moderates.
The Best Way to Profit
In conclusion, the best way to profit from AAPL stock presently is similar to what institutional investors do – hold through ups and downs, reinvest dividends, and let compounding work its magic over many years.
Spectacular new innovations could catalyze Apple’s growth engine again. But for now, patient, long-term investors can ride its predictable hardware refresh cycles and high-margin services ecosystem to steady gains.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
