Despite recent technical oversold signals, Apple Inc. (AAPL) continues to be rated as a 'Hold' due to its elevated valuation. The forward P/E ratio stands at 31.4x, suggesting that the company's stock price may already reflect optimistic future growth expectations. While the market anticipates a robust first quarter for fiscal year 2026, driven by strong iPhone 17 sales and a potential resurgence in Chinese revenue, concerns persist regarding the long-term sustainability of this growth. Specifically, the company's projected Earnings Per Share (EPS) Compound Annual Growth Rate (CAGR) from fiscal year 2022 to 2026 is a modest 7.8%, which may not fully justify its current premium valuation.
In September 2025, I adjusted my rating on Apple Inc. from 'Buy' to 'Hold.' This decision was primarily influenced by an observed overvaluation of the stock, which I attributed to excessive market enthusiasm surrounding potential tariff relief and the company's burgeoning Artificial Intelligence (AI) initiatives. The market's perception of these factors appeared to inflate the stock's price beyond its fundamental value, warranting a more cautious stance.
A critical point of discussion revolves around the sustainability of the AI-driven iPhone upgrade cycle. While new AI features are undeniably attractive, a significant portion of the target demographic already possesses recent iPhone models, such as the iPhone 16 or 17. This raises questions about the incremental demand that future AI advancements can generate. For Apple to maintain its growth trajectory and justify its valuation, it must explore novel monetization strategies beyond the mere sale of hardware products.
The company needs to innovate its AI offerings, moving beyond product sales to embrace subscription-based AI services. This shift would provide a more consistent revenue stream and could potentially unlock new avenues for growth, differentiating Apple from its competitors. Without such strategic adjustments, the current valuation remains a point of concern for long-term investors.
Considering the current market landscape, Apple’s valuation appears stretched. While the company exhibits strong underlying fundamentals and a loyal customer base, the growth rate needs to accelerate significantly, or its valuation multiples need to contract, to present a more compelling investment opportunity. The focus should be on how Apple plans to innovate and capitalize on AI beyond its existing product ecosystem.