After the release of the first AI iPhone, Apple's stock price may be difficult to rise and easy to fall
Apple is set to release its first AI-powered iPhone on September 10th, with an expected launch date of September 20th. However, the AI functionality will require an update by October. Historical data shows that Apple's stock tends to underperform after such events, as investors' expectations are often too high. Apple's stock price has recently risen by 39%, with a P/E ratio higher than the historical average. It is anticipated that if the new iPhone fails to meet expectations, it will put pressure on the stock price, especially in September, which is historically its worst-performing month
Apple Inc. (AAPL.US) will hold its latest product launch event in the early hours of September 10th Beijing time, where the latest iPhone equipped with AI functionality will be unveiled. However, recent reports from the media suggest that the latest iPhone will be released on September 20th, but the artificial intelligence features will only be available through a software update in October.
Due to investors' eager anticipation for Apple's latest iPhone, its stock price has recently surged close to historical highs. However, history shows that Apple's stock usually performs poorly after an iPhone launch, as expectations for Apple are extremely high and its stock price is relatively high compared to earnings, leaving little room for error.
Given the importance of the iPhone to Apple's product lineup - accounting for nearly half of its total revenue last quarter, if the latest iPhone fails to meet expectations in terms of product features or sales, Apple may face another valuation hit.
Apple's stock price has risen by 39% since its low point in April. Data shows that this move has increased its market value by over $900 billion, contributing 22.6% to the total increase in the Nasdaq 100 index during the same period, surpassing any other constituent stock. Apple's expected price-to-earnings ratio is 31 times, more than 50% higher than the 10-year average P/E ratio level. Last month, the company's revenue multiple reached 8.8, the highest level since at least 2000.
Apple's revenue multiple on the rise
According to data, out of the 17 previous iPhone launch days, Apple's stock price declined 12 times. In addition, September has been the worst performing month for Apple's stock price in the past 10 years, with an average decline of 3.2% during the same period. According to the Stock Trader's Almanac, the S&P 500 index and the Dow usually also perform poorly in September.
Denny Fish, portfolio manager of Janus Henderson Global Technology and Innovation Fund, said: "You can easily imagine a scenario where the market has built up this enthusiasm, but we need to wait for some time before we see concrete evidence of Apple's AI strategy working. While there is a desire for AI features, there are also doubts, and the valuation multiples are at the high end. Generally speaking, this is not a good time to buy." The fund manages $7 billion in assets.
Monthly Performance of Apple in the Past Decade
The optimistic sentiment towards its artificial intelligence strategy has been the main driving force behind the rise in stock price. Citigroup has listed Apple as the top stock for artificial intelligence in 2025; while investment firm Third Point LLC recently stated in an investor letter: "Demand related to artificial intelligence may significantly improve Apple's revenue and profits in the coming years."
Apple's growth has been lackluster for some time now. Out of the past seven quarters, five quarters have seen a decline in revenue. Analysts predict that revenue for the 2024 fiscal year will only grow by 1.8%, and by 7.9% in the following fiscal year. In comparison, data shows that the overall revenue of the technology sector in the S&P 500 index is expected to grow by 10.9% in 2024 and by 12.7% in 2025.
Ironically, due to improvements in the quality of iPhones, consumers are using their phones for longer periods as the camera and battery have been enhanced, but prices have also increased, giving consumers less reason to splurge on new models. This has resulted in Apple's revenue growth remaining tepid.
Nevertheless, Wall Street is betting that the latest artificial intelligence features in the iPhone will prompt more customers to upgrade, thus accelerating growth. The potential user base for the new iPhone is very large. Out of over 800 million Apple smartphones in circulation, over 40% of users are using an iPhone 12 or older version, while 27% are using an iPhone 13. Currently, less than 10% of users have a phone capable of upgrading to artificial intelligence software.
However, a survey by Business Intelligence in July of American smartphone consumers indicated that artificial intelligence may not be enough to stimulate upgrades, posing a risk to Apple's upward momentum. MoffettNathanson recently initiated coverage on Apple stock with a "Neutral" rating. The firm stated that valuation levels imply that "the AI upgrade cycle for iPhones is far greater than the 5G upgrade cycle in 2021/22," expressing doubts about whether Apple can achieve this, especially considering the interest rate environment.
Despite the risks, people remain optimistic about what artificial intelligence means for Apple's long-term growth, expecting the upgrade cycle to last for several years. Cantor Fitzgerald's Chief Stock and Macro Strategist, Eric Johnston, stated that even if there is selling pressure around the release of the new iPhone, over time it will bring in revenue and profits, driving the stock price. He said: "The current P/E ratio is obviously high, but if the momentum is strong, expensive stocks may remain expensive. I think that's the case with Apple."