At a $3 Trillion Market Cap, Has Apple’s Stock Gotten Too Expensive?

Apple’s stock has been flying in 2023 even though its growth rate hasn’t looked great.

Apple‘s (AAPL 0.90%) stock price has already soared 45% this year, propelling it to a valuation topping $3 trillion. The tech giant’s stock trades as if it were still a high-growth startup even though those days appear to be long gone. Given all this quick growth, some are wondering if the stock has already peaked for 2023. Is Apple still a good investment opportunity, even at an inflated price tag?

Apple’s growth rate slowed significantly in recent years

Over the past decade, Apple has averaged a revenue growth rate of around 10%. And that’s with the tech company benefiting from a bump in activity during the pandemic. But with the economy coming back to more normal levels in many ways, Apple’s growth rate is now below average and it even turned negative in recent quarters:

For the three months ending April 1, Apple’s quarterly revenue was down 2.5% year over year. While services revenue was at an all-time high of $20.9 billion, it grew at a rate of only 5.5% year over year. Apple’s diluted per-share profit of $1.52 for the period was identical to what it reported a year ago. But while the business is solid and generating strong profits, it’s debatable whether it warrants such a high premium.

Apple’s valuation is incredibly high

Apple’s stock gains this year have dwarfed the S&P 500, which is up 15% since January. The stock’s price-to-earnings (P/E) ratio isn’t at its peak but it is much higher than its 10-year average:

Between 2021 and 2022, meme stocks were hot and investors were paying obscene valuations for investments, and so Apple’s P/E multiple during that time was inflated as well. At over 30 times earnings, Apple should be generating a strong growth rate. Instead, its sales have been declining and that trend could continue. The consensus analyst price target for Apple’s stock is just over $181, which is lower than where the stock closed on Monday ($188.61).

Why Apple could face challenges ahead

The analysts’ consensus suggests some risk of a price drop, but there may be even more downside risk for the stock, especially if the economy falls into a recession this year and Apple’s business struggles even more than it has of late. While Apple did announce the Vision Pro headset, I’m not sold on this being a great opportunity for the business. Spending on the metaverse and headsets is what weighed down Meta Platforms‘ bottom line in recent years, and that could pose a similar problem for Apple if it gets too deep into that business. What has made Apple successful over the years is that it makes products that are easy to use and appeal to the masses. Headsets might appeal to gamers but I’m doubtful of just how much the company will gain from that. Inflation has led to consumers tightening their budgets, and demand for a $3,500 headset could be thin. Apple’s products and services as a whole could falter in future periods as consumers scale back on spending. Plus, investors shouldn’t forget that student loan repayments will resume later this year, and that could mean even less discretionary income for consumers, creating another potential headwind for Apple.

Apple’s stock isn’t a buy at these levels

For Apple to be trading at such a high valuation, the business should be firing on all cylinders and growing at an impressive rate, with much more growth on the horizon. And that clearly isn’t the case. While its fundamentals remain solid and this is a hugely successful and profitable business, the price is simply too high to make it a good buy right now. If you have Apple’s stock in your portfolio it can still be a good investment to hang on to for the long term. But prospective investors are better off buying other growth stocks where they can get more value for their money.