Buying and holding Apple (AAPL 0.37%) has without a doubt been one of the best investment decisions anyone could've ever made. Had you invested $1,000 in the consumer technology titan's shares roughly 44 years ago at its initial public offering, that position would be worth just under $2.5 million (as of Jan. 6). It's hard for anyone to argue with these results.
Today, Apple is a behemoth that carries a market cap of $3.7 trillion and that generated $391 billion in revenue in fiscal 2024. But it's still on investors' radars. Could investing $1,000 in this "Magnificent Seven" stock make you a millionaire?
Slower hardware sales
Apple sells numerous physical products that consumers love. It's mind-boggling that there are over 2.2 billion active devices in use worldwide. This figure continues marching higher with each passing quarter.
However, Apple remains a smartphone enterprise at its core. The iPhone alone raked in $46.2 billion in revenue in the fiscal fourth quarter of 2024 (ended Sept. 28), 49% of the company's total. That figure was up 5% compared to the year-ago period, showing how difficult it is to really move the needle these days. New feature upgrades, which aren't as revolutionary anymore, don't drum up interest from consumers like they did in the iPhone's earlier years.
The introduction of Apple Intelligence, the company's various AI-powered tools that are offered free in newer product models, is making bullish investors hopeful the business can ignite an upgrade super-cycle. Investors will have to wait until Jan. 30, when Apple reports Q1 2025 financial results, for insights about demand trends for the latest iPhone launch.
Importance of services
One of Apple's key strengths is that it has long developed its own software internally. This is precisely what powers its so-called ecosystem, locking users in and discouraging them from switching to competitor offerings.
Apple's services division generated $25 billion in revenue in Q4, representing 26% of the company's total. Included here are things like Apple Pay, Apple TV+, iCloud, and the App Store. The iPhone deservedly gets a lot of the attention from observers, but services is a budding division that saw top-line growth of 13% last fiscal year, faster than hardware sales, with a stellar 74% gross margin.
I already discussed Apple Intelligence. The business is developing internal AI capabilities, but it's worth pointing out that the company is partnering with OpenAI to integrate ChatGPT into Apple's operating systems, most notably with Siri. This somewhat strengthens the value proposition that Apple's services give to consumers.
What matters at the end of the day, though, is if AI can support higher revenue growth over the long haul. This starts with device sales and trickles down to software and services. Time will tell.
Making a million
There's no question that Apple remains one of the world's most dominant enterprises, selling products and services that consumers can't live without. Its brand is insanely powerful, and the business is extremely profitable. These are wonderful traits.
However, investors must be critical about where forward returns are going to come from. Growth isn't exciting these days, but it's still healthy. Wall Street analysts expect revenue and earnings per share to rise at compound annual rates of 7% and 11.4%, respectively, over the next three fiscal years. That's understandable, given that Apple is in a mature stage of its lifecycle.
The valuation is also at an extreme level. Shares trade at a price-to-earnings ratio of 40.3, which is 79% higher than the trailing-10-year average. What's more, Apple stock is substantially more expensive than the tech-heavy Nasdaq-100 index, indicating the heightened optimism surrounding the company.
The prospects of softer growth over the next couple of decades, particularly when compared to the past, coupled with a steep valuation, make me believe that Apple won't turn an initial $1,000 investment today into $1 million.
