Is It Too Late to Buy Apple Stock?

Demand for the iPhone sent Apple (AAPL 0.38%) stock up nearly 10-fold during the past 10 years, making Apple one of the world's most valuable companies, with a market value of $3.5 trillion. Investors might be wondering if it can still deliver adequate returns from its current highs.

Although iPhone sales fell last year, the stock is up about 19% this year and sitting at new highs after the company said new features powered by artificial intelligence (AI) will be included in Apple's iOS later this year.

Apple Intelligence will be available as a free upgrade in iOS 18, but the advanced processors required for the new feature could drive strong demand for newer iPhone models and benefit Apple's share price.

Here's what to know before you decide whether Apple stock is right for your investment goals.

Apple Intelligence could accelerate iPhone sales

During the past year, innovations from Microsoft and Alphabet's Google led to the perception that Apple was falling behind in the AI race. Now some analysts are now taking the opposite view. Apple's focus on seamlessly integrating AI into its software experience while protecting user data could make it a preferred brand in the smartphone wars.

Despite the recent decline in iPhone sales, analysts expect Apple's revenue to rise 7% in fiscal 2025. That doesn't seem like the kind of growth that would send the stock surging to new highs, especially with the shares already trading at a premium price-to-earnings (P/E) ratio. However, analysts are still in the process of revising their estimates after Apple's big announcement last month.

At the end of June, Oppenheimer analyst Martin Yang maintained an outperform rating on the shares based on the expectation for accelerating revenue and earnings-per-share growth.

Meanwhile, Rosenblatt Securities upgraded the stock to "buy" after a U.S. survey found that Apple's focus on protecting user data could resonate with customers and lead to market share gains.

Another reason to believe Apple is about to see a wave of new iPhone buyers is that it already has momentum in driving sales from upgraders. In its fiscal first-quarter report in February, Apple said its iPhone active installed base hit a new all-time high driven by a record number of people upgrading during the holiday quarter. Apple Intelligence could drive another record quarter for iPhone during the holidays this year.

Is the stock a buy?

Investors should expect solid returns from the stock over the long term. Even with the stock selling at a relatively high P/E of 35, the company's ability to expand margins and increase profit is the key factor that will send the stock higher.

A strong upgrade cycle will naturally carry over to growing demand for services, especially apps that take advantage of the iPhone's new AI capabilities. Apple Intelligence opens the door for a lot of innovation over the long term in new service offerings that could add to current revenue and earnings streams.

Analysts currently expect Apple's earnings to grow 10% annually in the coming years, but those estimates are likely influenced by recent iPhone weakness and are still catching up to the higher sales expectations after Apple's AI announcement.

Apple's large installed base of devices and opportunities to expand margins with growing services revenue will likely drive earnings growth closer to the company's trailing 10-year average of 15% per year.

All said, Apple stock should perform in line with the market indexes at the least, with the potential to marginally outperform from here.