In 2023, Apple (NASDAQ:AAPL) stock has demonstrated robust performance, surging by 47% and approaching its all-time high from July. As a prominent member of the "Magnificent 7" group of stocks influencing the S&P 500's performance, Apple holds significant sway, constituting 7.4% of the total weighted index. The tech giant made history as the first company to surpass the $3 trillion valuation threshold, prompting speculation about its trajectory in 2024.
The journey to $3 trillion for Apple was a notable accomplishment, and despite the saying "the first million dollars is the hardest," the company achieved this feat in a relatively short time frame. However, Apple faced challenges in 2023, with overall revenue down 2.8%, primarily attributed to sluggish growth in iPhone sales, which constitute 52% of total sales. The bright spot was the services segment, accounting for 22% of sales and experiencing a 9% increase in revenue. Nevertheless, it wasn't sufficient to offset declines in other product categories.
Amid Apple's impressive stock performance, there appears to be a discrepancy between its business fundamentals and market valuation. Trading at a substantial premium, the stock has a price-to-earnings ratio of 26 and trades over 5 times its projected earnings growth rate. Despite lower profit growth estimates by Wall Street, Apple's shares continue to trade at a premium, raising questions about the sustainability of such valuations.
The stock's resilience may stem from its reputation for quality and a substantial cash reserve of over $60 billion. Even with concerns about slowing growth, Apple remains attractive to investors, with Warren Buffett's Berkshire Hathaway heavily invested in the company. Buffett has emphasized Apple's unique standing as a superior business, attributing its appeal to being a "better business" compared to others in Berkshire Hathaway's portfolio.
Looking ahead, the path to a $4 trillion valuation for Apple in 2024 is uncertain due to predictions of slower sales and profit growth. However, factors like Apple's services business, artificial intelligence initiatives, and the new Vision Pro headset could act as catalysts for sales growth. While a meandering 2024 is anticipated, Apple's intrinsic strengths position it as a compelling long-term investment, with its eventual achievement of a $4 trillion valuation seen as plausible.